b'Chief Executive Officers review continuedMercias investment model was developed toFund performance Debtcounter the inevitability of cyclical markets,Mercias investment model is to targetMercias debt funds have been activelywith many of the team at Mercia havingappropriately priced regional businesseslending throughout the year and our recent invested through the cycles of 2000 and 2008.seeking modest capital to, in part, protectCoronavirus Business Interruption Loan Mercias model is to seek material influenceMercia from major cyclical corrections. WeScheme (CBILS) accreditation will enable us (c.2040% stakes) in companies that havehave performed a thorough COVID-19 analysisto further support regional businesses relatively modest capital needstypically lessacross the whole Mercia portfolio andthrough these challenging times.than 10.0millionwith realistic entryadjusted valuations accordingly. Although our valuations. This, together with our strongventure and private equity portfolios are notBalance sheetliquidity, positions us well to support ourimmune to these asset price corrections, weThe average holding period of our direct investee companies and influence appropriatebelieve that they are weathering the storm,investments is just under three years with an decision making at this time.compared to the broader industry, with fundexpectation that investments will be realised portfolio fair value movements between +10%over a three to seven-year time frame from Sadly, in every correction there are bothto -30% as at 31 March 2020. initial investment. Since Mercias IPO in winners and losers. Businesses with near-termDecember 2014, we have invested 94.7million profitable business models and business-to- Venture into our current direct investments, plus a business (B2B) operations with strongMercia benefits from a diversified venturefurther net 1.3million as a cornerstone recurring revenue in favoured sectors such asportfolio of 233 businesses across differentinvestor in four of our managed funds. Thus far software, digital entertainment, medtech,sectors and stages of development. As a directwe have generated 14.5million in realised digital healthcare, diagnostics and biotech consequence of COVID-19 there has been anreturns. The net asset value of our direct will likely benefit. Within our direct inevitable fair value movement in manyinvestments at the year end was 87.5million investment portfolio, Warwick Acoustics,investee holding values resulting in fund(2019: 87.7million), with the overall reduction Impression Technologies (both serving theportfolio valuations being adjusted in the yearbeing largely as a result of the impact of automotive sector), Crowd Reactive (eventsranging from up by 10% to down by 31%. COVID-19. management) and LM Technologies (Chinese supply chain) have inevitably suffered.Private equityHowever, others have benefitted: within theOur first private equity fund to be fully biotech sector, OXGENE and The Nativeunwound is another regional fund, the Antigen Company; within digital homeCoalfields Growth Fund (CGF), which has entertainment, nDreams and Soccer Manager;generated an internal rate of return (IRR) of and Intechnica within online queue19.8% and distributions to paid-in capital management and website defence. Reflecting(DPI) of 167%. This fund benefitted from a structural changes and new emerging sectors,portfolio of eight companies generating five we have remodelled or pivoted certaintrade sales at multiples above cost. The portfolio companies and revised ournotable exit of Woodall Nicholson in March investment approach to new prospects, 2020 generated a return of c.9.6x on the to reflect this emerging paradigm.original cost. The COVID-19 impact on holding values across our active private equity FuM has contributed to a reduction in fair values of 7% to 31%.18 Mercia Asset Management PLCAnnual Report and Accounts 2020'