b'Mercia asset Management PLc57Annual Report and Accounts 2021risk Possible consequences Mitigationthe value of the groups directA large proportion of the overall value of theThe Group seeks to balance the total portfolio by sector quantum and investment portfolio may bedirect investment portfolio may at any timevalue, as the total number of direct investments and their values grow dominated by a single orbe accounted for by one or very fewover time. Notwithstanding several successful exits during the year, the limited number of companies. companies. There is a risk that one or more ofcurrent portfolio continues to be well-balanced. Portfolio company fair valuesthe portfolio businesses will experienceConcentration risk is further mitigated by the increased resources have been affected bothfinancial difficulties, become insolvent oravailable to assess and monitor direct investments and by the fact that positively and negatively bysuffer from poor market conditionsthe overall portfolio is maturing with failures less likely to occur. The the coVid-19 pandemic, with(including the current pandemic) and if, as abalance sheet is an evergreen investment vehicle and can support firms some companies activelyresult, their values were to be adverselyfor longer, where appropriate. As well as the Groups increasing engaged in the development ofaffected, this could have a materiallyinvestment team talent, Mercia has focused its attention on testing solutions, whilstdetrimental effect on the overall value of thestrengthening investee company boards through its non-executive others have seen theirGroups investment portfolio and greaterdirector network and venture partners, further protecting against end-user markets curtailed inskew fair value concentration into a smallerinvestee failures.the near to medium term. number of companies. Currently, the top five direct investments represent 55.4% of the total portfolio by value.the united Kingdoms exitEuropean trade barriers, tariffs and borderThe Group focuses on sectors that largely operate without national from the european union maycontrols may impact portfolio companybarriers. Many of the Groups direct investments have a global targetStrategic reportimpact upon both the groupgrowth prospects. customer base, not just European.and its portfolio companies. Portfolio companies may find hiring andThe Group has sufficient funds under management and balance sheet retaining non-UK resident, highly skilled staffcapital to exercise investment and operational flexibility to support its more difficult. portfolio companies.Governance Financial statementsevents after the balance sheet dateOther than the continuing completion of approved direct investments and the reporting of performance fees payable to Mercia as at 31 March 2021 by two of the Northern VCTs, there have been no other material events since the balance sheet date.approvalThe Strategic Report was approved by the Board of Directors and signed on its behalf by:dr Mark PaytonChief Executive Officer5 July 2021'