b'26 Mercia Asset Management PLC Annual Report & Accounts 2022Our portfolioAngela WarnerManaging Director, Mercia InvestmentsProprietary CapitalAnother strong performance holding values, generating a portfolio IRR One year into its three-year Mercia 20:20of c.16% since Mercias IPO in December strategy, the direct investment portfolio2014. The balance sheet portfolio continues to excel, with more to come.continues to mature and strengthen, We typically aim to build direct holdingcomprising businesses with modest stakes between 10 and 30%. Combinedcapital needs. With its diversification with our managed fund positions, thisacross sectors, this portfolio is soundly set gives Mercia significant influence over thefor whatever the future brings.development of these investments,which includes utilising our in-houseWe focus on four distinct sectors that Mercia Nucleus to add high-profileinclude Deep Tech/Hard Tech, Life members to our portfolio boards andSciences and Medtech, Software and management teams. Digital Entertainment and Gaming. Keeping to Mercias hybrid investmentMore broadly, as the emphasis of global model, all the direct investments areinvestment moves away from Software shared with Mercias managed funds,and Digital Entertainment, we see which are often nurtured for many yearsGaming/VR and Deep Tech/Hard Tech before being transferred across as aas important areas of development, and direct investment. As in the previoussectors that play to the strengths of the year, we have seen significant fair valueUK regions. One company that exemplifies movements, with all the balance sheetthis is Faradion. This Sheffield-based SME realisations to date being sold abovedeveloped and commercialised a novel battery technology over the119.6mValue of direct investment portfolioWith its diversification across sectors, this portfolio is soundly set for whatever the future brings.'