Company: PHIL
Filing Date: 2025-02-19
Form Type: 10-Q
Source: 0001493152-25-007556
Chunk: 91

Company: PHI GROUP INC
Filing Date: 2025-02-19
Form: 10-Q
Item: Part I, Item 8
Chunk 91
---
 equity investing:

1.
Operational risk: The risk of loss resulting from inadequate processes and systems supporting the organization. It is a
key consideration for investors regardless of the asset classes that funds invest into.

2.
Funding risk: This is the risk that investors are not able to provide their capital commitments and is effectively the
‘investor default risk’. PE funds typically do not call upon all the committed investor capital and only draw capital once
they have identified investments. Funding risk is closely related to liquidity risk, as when investors are faced with a funding shortfall,
they may be forced to sell illiquid assets to meet their commitments.

3.
Liquidity risk: This refers to an investor’s inability to redeem their investment at any given time. PE investors
are ‘locked-in’ for between five and ten years, or more, and are unable to redeem their committed capital on request during
that period. Additionally, given the lack of an active market for the underlying investments, it is difficult to estimate when the investment
can be realized and at what valuation.

13

4.
Market risk: There are many forms of market risk affecting PE investments, such as broad equity market exposure, geographical/sector
exposure, foreign exchange, commodity prices, and interest rates. Unlike in public markets where prices fluctuate constantly and are
marked-to-market, PE investments are subject to infrequent valuations and are typically valued quarterly and with some element of subjectivity
inherent in the assessment. However, the market prices of publicly listed equities at the time of sale of a portfolio company will ultimately
impact realization value.

5.
Capital risk: The capital at risk is equal to the net asset value of the unrealized portfolio plus the future undrawn commitments.
In theory, there is a risk that all portfolio companies could experience a decline in their current value, and in the worst-case drop
to a valuation of zero. Capital risk is closely related to market risk. Whilst market risk is the uncertainty associated with unrealized
gains or losses, capital risk is the possibility of having a realized loss of the original capital at the end of a fund’s life.

There
are two main ways that capital risk brings itself to bear - through the failure of underlying companies within the PE portfolio and suppressed
equity prices which make exits less attractive. The former is impacted by the quality of the fund manager, i.e. their ability to select
portfolio companies with good growth prospects and to create value, hence why fund manager selection is key for investors