FONDUL PROPRIETATEA SA
Fondul Proprietatea SA Annual Sole Director’s Report 2021
Description of risk Mitigating action
Liquidity risk
The Fund might not be able to meet its financial
obligations as they fall due.
The Fund’s equity investments include unlisted
instruments issued by companies domiciled in
Romania, which are not traded on a regulated
market and generally may be considered illiquid.
As a result, the Fund may not be able to sell
certain investments within the time constraints
imposed by its own liquidity requirements, or to
respond to specific events such as deterioration
in the creditworthiness of a particular issuer.
As a closed end investment fund, liquidity risk of the Fund is
less significant than for an open-end fund, as shareholders do
not have the option to redeem their holdings.
The Fund’s approach to managing liquidity is to ensure that
it has sufficient liquid assets to meet its liabilities when they
fall due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the
Fund’s reputation. The Fund’s assets are periodically
monitored for their liquidity levels under both normal and
stressed market conditions.
Operational and Cyber risk
The Fund might incur direct or indirect loss
arising from a wide variety of causes associated
with the Fund’s processes, service providers,
technology and infrastructure, and from external
factors such as those arising from legal and
regulatory requirements and generally accepted
standards of corporate behaviour. Failure or
breach of information technology systems and
security may entail risk of financial loss,
disruption to operations or damage to the
reputation of the Fund. Operational risks arise
from all the Fund’s operations.
The Fund’s objective in managing operational risk is to
maintain a proper balance between limitation of financial
losses and damage to the Fund’s reputation with the overall
cost effectiveness, avoiding control procedures that restrict
initiative and creativity. The Fund has in place an
operational monitoring system, documented through policies
and procedures, which ensures escalation and remediation of
potential operational issues. The information technology
framework is designed to mitigate the risk of a cyber
security breach. A dedicated Cyber Security Program aims to
monitor, identify and respond to cyber-attacks and external
threats. The operational monitoring system covers all teams
involved with the operations of the Fund.
Legal and Regulatory risk
The existence, operation and the initial set-up of
the Fund are regulated by local and European
regulations. Such regulations may be subject to
change or subject of some local interpretations
and may directly affect the Fund and its
shareholders.
This risk is sustained by the legislative history of
the past years that reveals a series of laws which
have also changed the Fund’s portfolio
composition.
Representatives of the Fund consult with external agencies
and law firms with the aim to anticipate potential regulatory
changes and interpretations and assess their impact on the
Fund. In doing so the Fund strives to optimise its operational
efficiency under current and upcoming regulations.
Franklin Templeton has internal policies promoting
compliance with best practices and regulations.
Source: Fondul Proprietatea
Internal Control and Risk Management
Franklin Templeton has implemented internal policies and procedures for the Fund to ensure that timely and
accurate disclosure is made on all material compliance matters, including the investment restriction breaches,
NAV, errors, financial position, performance, ownership and governance. In addition, strict internal rules, designed
to protect the Fund’s interests, have been established in the areas of financial reporting, internal control and risk
management.
Franklin Templeton’s approach is to use a dedicated team of risk management specialists who are independent of
the portfolio managers and provide robust risk and performance analytics and unbiased perspective on the risks and
exposures in the portfolios.
Franklin Templeton has established Compliance departments responsible for managing the compliance risk of the
AIFM and of the Fund, considering the applicable legislation as well as the internal policies and procedures. The