Annual Financial Report

April 25, 2024

Our Philosophy - The key pillars that have guided our business for more than two decades and differentiate us.

Access - APEO gives investors access to high-quality private equity managers and private companies, within a market that can be complex to navigate.

The private equity market can be difficult and complex to navigate, and there are many opportunities for investors to choose from. Investment selection is critical in order to generate the differentiated returns that private equity can deliver, relative to other asset classes.

Our long-standing market presence and local networks provide us with insights and relationships that, we believe, unlock some of the best opportunities for investment in private equity funds and direct investments, alongside our core private equity managers. We work hard to find and foster these relationships so we become strong and reliable partners to these core managers. This enables us to build and maintain a diversified and high-quality portfolio of underlying private companies.

As an investment trust listed on the London Stock Exchange, APEO offers shareholders an opportunity to invest in these private equity funds and direct investments for as little as the price of one of the Company's shares. As APEO's shares are listed on the London Stock Exchange, they provide daily tradable access to an asset class which is normally relatively illiquid.

Expertise - abrdn Capital Partners LLP has managed APEO since its inception and its team has specialist knowledge in European markets.

The Investment Manager has a large and well established team of investment professionals. It has managed APEO for more than two decades, since inception, and has generated consistent performance over that time.

The European private equity market is a complex investment arena, with multiple strategies and managers to choose from, not to mention the different cultural and technical nuances across the various countries. The Investment Manager's specialist expertise is a key asset in navigating these complexities and honing in on the best private equity managers, funds and co-investments for our shareholders.

APEO predominantly invests in European focused investments and underlying private companies. Around 75% (2022: 76%) of the total value of underlying portfolio company exposure is invested in European domiciled operating companies, with a weighting towards North Western Europe. This has been APEO's geographic focus since its inception in 2001 and where it has a strong, long-term track record. However, APEO also selectively seeks exposure to North American mid-market companies, as a means to access emerging growth or investment trends that cannot be fully captured by investing in Europe alone.

Geography of the Underlying Portfolio as at 30 September 2023

Focus - APEO has a carefully selected portfolio of some of the best investments in mid-market private equity

We are predominantly focused on the private equity mid-market, which we define as businesses between €100 million and €1 billion in enterprise value ("EV"). It's our belief that this part of the market is particularly attractive, given it generally relates to growing, profitable, cash generative businesses that are well established but still have clear opportunities to further create further investment value.

Diversification is a well-recognised means of managing investment risk and we achieve that through a portfolio of around 50 "active" private equity fund investments, that in turn have exposure to over 700 underlying portfolio companies. But we also believe it is important to have conviction and to concentrate our firepower. We do this by selecting and focusing our capital with a group of a dozen or so core buyout managers and partnering with them through primary commitments to their funds, providing liquidity to their investors through secondary transactions and making direct investments alongside them in private companies.

Consistency - APEO has a history and track record of more than two decades, based on the foundation of rigorous and disciplined investment analysis

We take a rigorous and disciplined approach to investment analysis that delivers consistent long-term investment returns across market cycles.

Private equity is often perceived to be a risky business, but our historic track record proves that steady NAV performance and consistent growth are possible. What's more, stability does not have to translate into reduced returns; our NAV has grown over ten times since launch.

STRATEGIC REPORT

INVESTMENT STRATEGY

Investment Objective

The Company's investment objective is to achieve long-term total returns through holding a diversified portfolio of private equity funds and direct investments into private companies alongside private equity managers ("co-investments"), a majority of which will have a European focus.

Investment Policy

The Company: (i) commits to private equity funds on a primary basis; (ii) acquires private equity fund interests in the secondary market; and (iii) makes direct investments into private companies via co-investments and single-asset secondaries. Its policy is to maintain a broadly diversified portfolio by country, industry sector, maturity and number of underlying investments.

The objective is for the portfolio to comprise around 50 "active" private equity fund investments; this excludes funds that have recently been raised, but have not yet started investing, and funds that are close to or being wound up. The Company may also invest up to 25% of its assets in direct investments into private companies, via co-investments alongside private equity managers.

The Company may also hold direct private equity investments or quoted securities as a result of distributions in specie from its portfolio of fund investments. The Company's policy is normally to dispose of such assets where they are held on an unrestricted basis.

To maximise the proportion of invested assets, the Company follows an over-commitment strategy by making commitments which exceed its uninvested capital. In making such commitments, the Manager, together with the Board, will take into account the uninvested capital, the value and timing of expected and projected cash flows to and from the portfolio and, from time to time, may use borrowings to meet drawdowns. The Board has agreed that the overcommitment ratio should sit within the range of 30% to 75% over the long term.

The Company's maximum borrowing capacity, defined in its Articles of Association, is an amount equal to the aggregate of the amount paid up on the issued share capital of the Company and the amount standing to the credit of the reserves of the Company. However, it is expected that borrowings would not normally exceed 30% of the Company's net assets at the time of drawdown.

The Company's non-sterling currency exposure is principally to the euro and US dollar. The Company does not seek to hedge this exposure into sterling, although any borrowings in euros and other currencies in which the Company is invested would have such a hedging effect.

Cash held pending investment is invested in short-dated government bonds, money-market instruments, bank deposits or other similar investments. Cash held pending investment may also be invested in other listed investment companies or trusts. The Company will not invest more than 15% of its total assets in such listed equities.

The investment limits described above are all measured at the time of investment.

Portfolio Construction Approach

Investments made by APEO are typically with or alongside private equity firms with whom the Manager has an established relationship of more than ten years.

As at 30 September 2023, APEO directly held 80 separate fund investments (2022: 75) comprising of primary and secondary fund interests, as well as 26 direct investments (2022: 22).

Through its portfolio of directly held investments, the Company indirectly has exposure to a diverse range of underlying portfolio companies, as well as additional underlying fund of fund and co-investment interests. At 30 September 2023, APEO's underlying portfolio included exposure to 720 separate underlying portfolio companies (2022: 655).

APEO predominantly invests in European mid-market companies. Around 75% (2022: 76%) of the total value of underlying portfolio company exposure is invested in European domiciled operating companies and the Board expects this to remain the case over the longer term, with a weighting towards North Western Europe. This has been APEO's geographic focus since its inception in 2001 and where it has a strong, long-term track record. However, APEO also selectively seeks exposure to North American mid-market companies, as a means to access emerging growth or investment trends that cannot be fully captured by investing in Europe alone.

APEO has a well-balanced portfolio in terms of non-cyclical and cyclical exposures. Currently the largest single sector exposure (Information Technology) represents 22% of the total value of underlying portfolio company exposure1 (2022: 20%) and it is expected that no single sector will be more than 30% of the portfolio over the longer term. Over time, the Manager anticipates a continuation of the recent shift toward sectors that are experiencing long-term growth (such as Technology and Healthcare) at the expense of more cyclical sectors, such as Industrial and Consumer Discretionary.

Environmental, social and governance ("ESG") is a strategic priority for the Board and the Manager. APEO aims to be an active, long-term responsible investor and ESG is a fundamental component of APEO's investment process. Further detail on the Manager's approach to ESG can be found below.

1 Excludes underlying fund and co-investments indirectly held through the Company portfolio.

CHAIR'S STATEMENT

Introduction

The past 12 months have been eventful, for both APEO and the wider market. Whilst the Investment Trust sector and APEO remain challenged by stubbornly wide share price discounts to NAV, I am heartened that the APEO portfolio has continued to deliver a resilient annual NAV TR during the period of 5.4%, despite a currency FX headwind of -2.8%, and that the Company continues to regularly return capital to shareholders through its enhanced quarterly dividend, delivering a yield of 3.6% as at 30 September 2023.

For this year's Annual Report, I have changed the format of the Chair's Statement to ensure that I am directly addressing the key questions of shareholders. I hope that shareholders find this format more engaging and useful but, as always, I encourage shareholders to provide the Board with feedback on the Annual Report and indeed the Company more broadly. The Board and I can be reached at APEO.Board@abrdn.com.

The Manager announced in October 2023 that it is due to be purchased by Patria Investments Ltd, subject to regulatory approvals. What impact will that have on APEO and its shareholders?

The Board noted the announcement made by abrdn plc on 16 October 2023 of the conditional sale of abrdn Private Equity to Patria, a global alternative asset manager established in Latin America. This includes the sale of abrdn Capital Partners LLP, the Company's Investment Manager and AIFM.

The Board and I place the interests of APEO shareholders at the forefront our minds when considering the Patria transaction. We have been fully engaged with abrdn, the Company's Manager, and Patria for a number of weeks now, indeed even before the conditional sale was formally signed and announced. In this regard, the Board has received assurances from abrdn and Patria that the Company's investment management team will remain unchanged should the sale complete. abrdn has also confirmed that appropriate arrangements will be put in place to maintain the existing administration and other services currently provided by abrdn or third-party service providers.

That said, the Board is evaluating the impact of the sale on the Company and its management team and is continuing to have constructive discussions with Patria. No changes will be made to the Company's existing management and administration arrangements prior to the completion of the sale, and we expect the impact of the sale to be cost neutral for the Company and its shareholders. The Board will provide an update to APEO's shareholders on the progress of the sale, which is expected to complete in the first half of 2024, in due course.

How has APEO performed during the year to 30 September 2023?

Over the 12 months to 30 September 2023, the share price total return increased by 11.7%, which I would normally consider strong performance in isolation.

However, I recognise that this performance is relative to a low base, in terms of the share price declines we saw in most equities and asset classes in 2022. The APEO share price total return underperformed the 13.8% total return from the FTSE All-Share Index over the period and the share price discount to NAV remained wide at 43.2% (30 September 2022: 45.6%). APEO's share price performance is by no means an outlier in the investment trust landscape, and particularly the private equity investment trust sector, which continues to see lukewarm investor buying demand. I personally find the current share price discount confusing given the quality of APEO's underlying portfolio companies, the robustness of its valuation (see later comments) and the long-term nature of its NAV growth. The NAV TR of 5.4% during the period (30 September 2022: 14.1%), even with the challenging market conditions and into a currency FX headwind, helps to further demonstrate this resiliency and also means that APEO's NAV has grown in every year since 2010.

If we look a little deeper into the NAV performance during the year, I would highlight that the portfolio has grown in value by 9.4% in constant currency terms.

I take particular satisfaction in watching the evolution of the Company's direct portfolio of co-investments and single-asset secondaries, which we introduced at the start of 2019. The direct portfolio grew by 21.1% during the year and now equates to 19.4% of the overall portfolio. I would encourage shareholders to read the Investment Manager's Report, where the Manager outlines the portfolio in detail and the drivers of performance.

Private equity market activity has fallen during the year; how has that impacted upon APEO's cash flows, balance sheet, new investment deployment and outstanding commitments?

The decrease in private equity market activity during the year has had an impact on APEO but I believe that the Company remains well positioned. A key focus of the Board's interactions with the Manager over the last 12 months has been around cash flows, with the Board challenging the Manager to provide detailed scenario analysis to ensure that APEO remains in a strong liquidity position in this more difficult environment and can remain so if the current market conditions persist.

In the year to 30 September 2023, drawdowns totalled £193.2 million (30 September 2022: £253.6 million) and distributions totalled £202.9 million (30 September 2022: £210.2 million). I feel that APEO has weathered the sharp decline in private equity activity during the period well. I would highlight that part of the distribution figure includes partial sales relating to APEO's co-investment in Action, the European discount retailer. The Manager decided to take advantage of a liquidity window to reduce APEO's position for portfolio construction reasons. These trades generated £53.0 million of proceeds and were priced at 100% of the most recent valuation of Action in each case. Following these sales, Action remains the largest underlying portfolio company in APEO.

From a balance sheet perspective, we upsized the Company's revolving credit facility during the year, from £200 million to £300 million, and extended the maturity by a year to December 2025.

At 30 September 2023, APEO had £9.4 million of cash and cash equivalents (30 September 2022: £30.3 million) and £197.7 million remaining undrawn on the revolving credit facility (30 September 2022: £138.0 million). Therefore, should markets result in a period of a relatively low private equity activity, I believe that APEO has a sufficiently strong balance sheet to weather the storm.

In APEO the Manager does not try to time the market, rather it aims to deploy consistently through the cycle so that its underlying managers can capture the best buying opportunities in the market. Therefore, the year to 30 September 2023 was another active year of new investment deployment, with £174.8 million committed to 13 new investments (30 September 2022: £340.3 million to 24 new investments). Whilst new investment deployment was materially behind levels in 2021 and 2022, which were especially active years, I feel excited by the new investments made in 2023, all of which are very much "on strategy" for APEO.

The Manager runs an overcommitment strategy for APEO and has done so since the Company's inception in 2001. This ensures that APEO's resources are efficiently deployed, given it makes primary fund investments - this involves committing an amount of equity capital which is then typically drawn over a three- to five-year period. Outstanding commitments at 30 September 2023 were £652.0 million (30 September 2022: £678.9 million) and this equates to an overcommitment ratio of 35.2%, at the lower end of our target range of 30-75%.

The Investment Manager's Report provides further information on cash flows, balance sheet, new investments and outstanding commitments.

What is the Board's view on the valuation of the portfolio?

The Board and Audit Committee continually monitor and challenge the Manager on the valuation of the underlying portfolio, and the Board has gained insight and reassurances on the strong governance around the valuation of APEO's portfolio through this ongoing oversight process. It should be noted that the vast majority of APEO's investments are, at an underlying level: (i) revalued on a quarterly basis; (ii) audited independently at least annually;(iii) valued in line with International Private Equity and Venture Capital Valuation ("IPEV") Guidelines; and (iv) audited either in line with International Financial Reporting Standards ("IFRS") or US generally accepted accounting principles ("GAAP") accounting standards. Once the valuations reach APEO, they are scrutinised by the Manager on a quarterly basis under a diligent Valuation Policy, including a fulsome Valuation Committee, as well as APEO's external auditors on an annual basis.

Whilst I could discuss the valuation merits of APEO's portfolio in a lot of detail, including the defensive and profitable nature of APEO's underlying private companies and the strong earnings growth the portfolio has seen over the period, ultimately I believe that the test of any private equity valuation is evidenced by the sale price at exit of each investment. As mentioned earlier, APEO has undertaken a number of partial secondary sales with respect to its position in Action, a European discount retailer, and all of these disposals have been achieved at 100% of the most recent quarterly valuation of that asset. Furthermore, while the volume of private equity exits has been lower over the course of 2023,distributions from fund investments during the year to 30 September 2023 were at an average uplift of 18% when compared to the unrealised valuation two quarters prior.

The Boards conviction on the current valuation of the portfolio was a key factor in progressing with a buyback programme, as announced earlier this month.

What is the Board's view on share buybacks, and could you explain the rationale around the announced buyback programme?

The Board does not have a stated discount management policy. That said, the Board and Manager closely monitor the discount on a regular basis to ensure that APEO is not an outlier when compared to other investment companies with a similar investment approach and shareholder structure. Suffice to say there is a balance to consider in terms of buying-back shares, right now that centres on the ability to provide NAV accretion for our shareholders versus preserving cash liquidity during this period of lower private equity exit activity.

Also, the Board considers the quarterly enhanced dividend effectively a regular return of capital to shareholders at NAV and has prioritised this over share buybacks in recent years.

However, in light of the persistently wide share price discount to NAV, coupled with both the Manager and the Board's strong conviction in the valuation of the portfolio, the Board announced in January 2024 that it will use a portion of the €34.6 million of proceeds realised from its most recent partial sale of APEO's co-investment in Action to commence a buyback programme. The ability to recycle a significant portion of the Action sale proceeds, realised at 100% of NAV, into buying APEO shares at a discount to NAV, is a compelling use of the Company's capital and provides NAV accretion to shareholders. It also highlights in the clearest terms the disconnect between APEO's current share price and the valuation of its underlying portfolio.

Going forward, the Board will continue to monitor the evolution of the share price and, in the event of further sizeable distributions from the portfolio, may look to extend the programme.

Does the Board plan to make any changes regarding the Company's dividend policy?

Since 2016, the Company has paid shareholders an enhanced dividend on a quarterly basis, which is effectively an ongoing return of capital to shareholders at NAV. The Board intends to continue this policy going forward, with the aim of maintaining the value of the dividend in real terms.

For the year to 30 September 2023, APEO has so far paid three quarterly dividends of 4.0 pence per share and the Board has announced a fourth quarterly dividend of 4.0 pence per share. This was paid on 26 January 2024 to shareholders on the register on 22 December 2023 and will make a total dividend for the year of 16.0 pence per share. This represents an increase of 11.1% on the 14.4 pence per share paid for the year to 30 September 2022.

What is your view on recent discussions around the packaged retail investment and insurance-based products ("PRIIPs") regime and cost disclosure more generally in UK Investment Trusts?

The Board and I welcome the recent discussions on this topic and the involvement of HM Treasury and the Financial Conduct Authority ("FCA"). We have long held the belief that the current cost disclosure requirements for UK Investment Trusts are misleading to investors, especially retail investors. The current regime effectively creates a double counting of costs, given that the NAVs of Investment Trusts are already calculated net of costs. Therefore, costs are already factored into the relevant share prices. I would also add, the synthetic or "look through" costs appear to have been calculated inconsistently across the Investment Trust sector, and therefore have been of limited use in terms of comparing different Investment Trusts. We will monitor developments over the coming weeks and months ahead, and the Board and I will make ourselves available should HM Treasury or the FCA seek direct feedback from the industry.

How has the Board performed during the year and how does the Board engage with shareholders?

The Board regularly considers its own performance and, whilst there have been no changes to the Board composition during the year, we have been active in considering Board succession planning. To help support potential future changes, Diane Seymour-Williams assumed the role of Chair of the Nomination Committee and Yvonne Stillhart was appointed as Chair of the Management Engagement Committee on 13 December 2022. Having served on the Board since 28 May 2014, I stepped down as a Member of the Audit Committee on 28 May 2023.

The Board's Policy on Tenure states that, in normal circumstances, Directors will not serve beyond the Annual General Meeting ("AGM") following the ninth anniversary of their appointment. In accordance with that policy, I would be expected to step down at the conclusion of the next AGM. However, the Board takes the view that the independence of Directors is not necessarily compromised by length of tenure on the Board and that continuity and experience can add significantly to the Board's strength. To that end the Nomination Committee recommended to the Board that I stay on the Board as Chair of the Board to oversee the transition of the Patria transaction and support the Manager as it embeds into Patria. The Board intends to recruit an additional Director during 2024 and the Board will address my successor in due course.

The Board enjoys interaction with shareholders and, in my capacity as Chair, I have been fortunate to meet with a number of the larger shareholders during the year and responded to a number of inbound emails from a range of other shareholders.

This year's AGM will be held on 27 March 2024 at 12:30pm at wallacespace, Spitalfields, 15-25 Artillery Lane, London, E1 7HA. The meeting will include a presentation by the Investment Manager and will be followed by lunch. This is a good opportunity for shareholders to meet the Board and the Manager and the Board encourages you to attend. The Notice of the Meeting is contained in the Annual Report.

At the AGM, one of the resolutions being proposed relates to a change to the Company's Articles of Association ("the Articles"). The proposed amendments being introduced in the Articles primarily relate to the new power conferred on the Board which provides it with flexibility to change the Company's name by way of Board resolution rather than shareholder resolution. We believe that this is standard practice and will allow the Board to change the Company's name at relatively short notice if required in the future.

Could you outline the Board's view and approach to ESG?

Firstly, I would flag that APEO is not designed as an "ESG investment company" per se; its investment objective is to create attractive returns for its shareholders through building a diversified portfolio of private equity funds and direct investments into private companies. That said, the Board continues to believe that integrating ESG best practice into APEO's strategy and investment processes will help support the investment objective by generating stronger, more sustainable returns for shareholders over the long term.

The Board monitors the Manager's commitment to ESG factors closely and encourages it to stay close to the latest market developments in this area. The majority of our portfolio is managed by third-party managers and the Board takes comfort from the Manager's policy to invest only with private equity firms who are ESG market leaders or have a strong cultural commitment to improve their ESG credentials.

I am personally encouraged by the Manager's ESG credentials, including obtaining the top rating for indirect private equity from the Principles for Responsible Investment ("PRI") in its latest assessment.

ESG has been embedded into the Manager's investment process since 2015 and every new investment made by APEO in recent years has been subject to specific ESG due diligence.

The Board has encouraged the Manager to continue to raise ESG standards across the industry and to publicise the work that it has done in this area. For further detail, including a Responsible Investment case study, see the Responsible Investment and Sustainability section below.

What is the outlook for the Company over the next 12 months and beyond?

The current private equity market is proving to be tough, with the sharp rise in interest rates impacting pricing expectations, availability and cost of financing, and ultimately causing a material decrease in private equity activity during 2023.

Whilst I currently hear rumblings in the market about sentiment starting to improve gradually, with more sale processes initiated in the second half of 2023 than in the first half of 2023, both the Board and the Manager are not anticipating a sharp rebound and we suspect a return to "normal" private equity activity levels might be some way off yet.

However, those that have read my previous Chair Statements will note that I have consistently said that private equity is an asset class that should viewed over the long term, where new investment decisions are often made with a five-year time horizon in mind. The immediate road ahead remains uncertain, but the governance model of private equity has proved many times in the past, most notably during the global financial crisis of 2008-09, that it facilitates nimble and active ownership and allows underlying businesses to adapt more quickly to changing market circumstances.

Periods of uncertainty also tend to offer up new and different opportunities for investment, which private equity firms have proved adept at generating and completing. This is why I believe that private equity should be particularly attractive to investors at times like these, in order to capture the upside that usually follows.

As we look ahead, I want to underline that the Board will continue to prioritise the interests of APEO shareholders. I remain convinced by the strategy of APEO, which is centred on investment selection conviction and focused principally on the European mid-market buyout segment of private equity, where there is a plentiful supply of private companies that are highly resilient niche market leaders or fast-growing disruptive businesses of the future.

On behalf of our investors, the Manager will continue to grow direct investment as a proportion of APEO's portfolio. This brings a number of advantages, not least lowering the fees APEO pays to underlying third- party managers and therefore enhancing the Company's NAV growth potential. The Board remains committed to maintaining the value of the quarterly dividend in real terms, returning capital regularly to shareholders at NAV. Furthermore, we will stay alive to opportunities to create further NAV for shareholders through opportunistic buybacks.

Lastly, in terms of the transaction relating to APEO's Manager, shareholders can be assured that the Board will remain closely involved and act in their best interests throughout our review. I hope that the Board will, in the very near future, be able to give a formal update and provide more clarity to shareholders on this matter.

Alan Devine

Chair,
30 January 2024

INVESTMENT MANAGER'S REVIEW

Summary of the Year

The portfolio has performed resiliently during the financial year, in spite of uncertainties in both the global economy and financial markets, as well as the private equity market experiencing lower deal activity compared to levels seen in recent years. Whilst the NAV TR of 5.4% is lower than the 14.1% APEO experienced in 2022, once the impacts of currency FX are removed the portfolio grew 9.4% compared with 10.5% in 2022. The NAV TR lagged the 13.8% increase in the FTSE All-Share, its comparator index, which recovered from the listed market headwinds in 2022. However, APEO NAV growth continues to outperform the FTSE All-Share over three, five and ten years, and since inception.

APEO's portfolio of private companies continues to perform well, with the top 50 companies by value, which equate to 40% of the overall portfolio, experiencing average revenue and EBITDA growth of 16% and 23% respectively in the 12 months to 30 September 2023. That has helped drive the resilient valuation performance in the unrealised book. Most notably, APEO's direct investment portfolio, which consists of direct co-investments into private companies and single-asset secondaries, continues to grow strongly, experiencing a valuation uplift in the year of 21.1%, once the effects of currency FX are excluded. The direct investment portfolio now stands at 26 underlying companies and 19.4% of the portfolio, even after the partial realisation of APEO's co-investment in Action, the European discount retailer.

The partial sale of Action was the largest single realisation during the year, returning £53.0 million to APEO. This proactive sale was conducted for portfolio construction reasons, taking advantage of a liquidity window that was facilitated by Action's lead investor 3i Group. The partial sales were made at 100% of the most recent valuation of Action in each case. Action remains APEO's largest single company exposure at 2.1% of the portfolio and the intention as we stand today is to continue to hold that position until an eventual exit of the business, albeit the Manger will continue to monitor the potential to make opportunistic sales in the future.

In terms of further cash coming back to APEO, distributions from fund investments totalled £149.9 million in the year. This was a decrease on the £209.8 million of distributions received by APEO during 2022, a figure that was an all-time annual record for the Company. The decrease is directly attributable to the lower level of private equity market activity we have seen during 2023. It is worth noting that the average exit from the portfolio during the year was at a multiple of 2.5x original cost of investment (2022: 2.2x cost) and at a 18% valuation uplift, when compared to the unrealised valuation two quarters prior. This valuation uplift is similar to the long-term average uplift upon exit (25%) and provides some assurance as to the valuation of APEO's portfolio.

Drawdowns totalled £193.2 million during the year (2022: £253.6 million), the vast majority of which was used to fund underlying investments in new portfolio companies. Whilst total realisations of £202.9 million exceeded the total drawdown figure, it is worth noting that when we only look at fund investments (excluding the impact of sales of direct investments) drawdowns outpaced distributions for the first time since 2010. This trend is linked to the decrease in private equity market activity and the fact that fund investments typically use a credit facility to bridge new investments into portfolio companies before drawing the money from investors. Therefore, drawdowns typically see a lag during periods when private equity market activity changes sharply, like we saw in 2023, and therefore this was fully expected and planned for by the Manager.

On the new investment side, the period ended 30 September 2023 saw APEO make new commitments totalling £174.8 million (2022: £340.3 million), with seven new primary fund investments, one secondary, three direct investments and two follow-on investments in existing direct investments. Whilst new investment deployment is materially behind the levels seen in 2022, the Manager would note that is partially a function of a less active private equity market and the Manager exercising caution during a relatively uncertain period. New fund investments continue to be aligned with our long-term strategy of backing private equity firms that have a mid-market orientation and have proven deep expertise within one or more specified sectors. As aforementioned, we continued to deploy capital into new direct investments during the year, with a good balance in deployment across our key sectors.

During the year the revolving credit facility was increased to £300 million (from £200 million) and the maturity extended by a year to December 2025. The larger facility, provided by RBS International, Société Générale and State Street Bank International, provides the Company with further flexibility and firepower for new investments. The balance sheet remains in a strong position with cash and cash equivalents of £9.4 million (2022: £30.3 million). APEO also had £197.7 million remaining undrawn on its revolving credit facility at 30 September 2023 (2022: £137.0 million undrawn on a £200 million facility).

The NAV TR for the year ended 30 September 2023 was 5.4% versus 13.8% for the FTSE All-Share Index. The valuation of the portfolio at 30 September 2023 increased 9.4% on the prior year on a constant currency basis, with a decrease of -2.8% attributable to FX gains during the year, principally due to the strength of pound sterling over the period, compared to US dollar and the euro.

The increase in value of the portfolio on a per share basis was 24.5 pence. This was principally made up of realised gains and income of 78.6 pence and net income from other assets of 0.3 pence, partially offset by net unrealised losses from the portfolio, FX in the unrealised portfolio, dividends and costs associated with management fee and administrative and financing costs totalling 54.5 pence.

The overall increase in the portfolio during the period is largely driven by the strong performance of the underlying portfolio companies, which generally continue to perform well operationally and have experienced continued earnings growth. Looking at the top 50 underlying portfolio companies, which are the main value drivers and equate to 40% of the portfolio, the average revenue and EBITDA growth was 15.6% and 23.4% respectively in the 12 months to 30 September 2023. That has helped drive the resilient valuation performance in the portfolio, rather than due to valuation multiples. Focusing on the same cohort, the median valuation multiple was 14.0x EBITDA at 30 September 2023, compared with 14.5x EBITDA a year prior. We are especially pleased about progress in APEO's direct investment portfolio, which has seen a valuation uplift of 18.5% during the 12 months to 30 September 2023, net of FX movements.

Realised gains were derived from full or partial sales of underlying portfolio companies during the 12-month period, which were at an average uplift of 18% to the unrealised value two quarters prior (30 September 2022: 20%).

The headline realised return from the portfolio exits equated to 2.5 times original cost (30 September 2022: 2.2 times original cost), which we consider a strong performance in what was a challenging backdrop to conduct successful exit processes.

Case study - primary - Montefiore Investment

Montefiore is a leading mid-market private equity firm in France, primarily focused on investing in companies in the French and Italian services sectors.

Investment: Fund VI/ Expansion

Fund size: €1.4bn/€400m

APEO's commitment: €30.0m (across the two funds)

Commitment year: 2023

Geographic focus: France

Target company size: Full mid-market focus

Sectors: Business and Consumer Sectors

Investment strategy: Buyout

History and Background

Montefiore Investment ("Montefiore") was established in 2005 by Éric Bismuth and Daniel Elalouf, and is headquartered in Paris, France. The firm was founded with the specific objective to invest in the French Services sector, particularly companies active in B2B Services, Digital and IT Services, B2C Healthcare Services and Tourism & Leisure, segments of the Services industry where Montefiore has deep knowledge and expertise.

Since inception, Montefiore has deployed the same successful strategy, focusing on profitable growth and business transformation. Montefiore typically acts as the lead investor and the first financial investor with a control ownership position. The firm is fully independent and owned by the Partners.

Strategy

The two Montefiore funds (Fund VI and Expansion I) provide APEO with the opportunity to invest in a leading continental-European lower/mid-market manager focused on the French and Italian Services sector.

Montefiore Fund VI is targeting businesses with EVs of €100-500 million and equity cheques of €40-200 million. Montefiore Expansion I is targeting businesses with EVs <€100 million and equity cheques <€40 million.

Montefiore operate a one team structure and are differentiated through their deep sector expertise, broad sourcing networks and capabilities, and their strong brand in the French and Italian markets.

APEO's Exposure

· abrdn Private Equity has partnered with Montefiore since 2016, committing to Funds IV and V and co-investing alongside Montefiore in NGE, an infrastructure services business.

· Montefiore VI and Expansion I are the first Montefiore funds that APEO has committed to. However, APEO made a direct investment alongside Montefiore into NGE in 2022.

· The Montefiore funds will provide APEO with exposure to growing midmarket services businesses in France and Italy, alongside one of the leading private equity managers in the region.

Previous / current investments

Ensio, Premium Group, NGE

Fund Secondaries

During the 12-month period, APEO invested and committed £4.6 million into one secondary transaction (2022:

£17.2 million into two secondaries).

Case study - Direct investment - HRworks

HRworks is a leading HCM cloud-native software provider to SMEs in the DACH region.

Lead Manager: Maguar

APEO's investment: €9.0m

Investment Year: 2023

Size at Entry: Mid-market (<€1bn EV)

Geographic Focus: Germany

Sectors: Technology

Company Overview

· Founded in 1998, HRworks is a leading HCM cloud-native software provider to small- and medium-sized companies ("SMEs") in the DACH region. The company's products cover a broad range of relevant HCM modules, e.g. expense management, time management, employee administration, talent management and recruiting software.

· The company is primarily focused on German SMEs with 50-249 full-time employees. This market still offers material white space with just 30% of the firms in this segment utilising an HR software suite.

· Maguar Capital first invested in HRworks in 2020 and have seen impressive growth of +27% revenue compound annual growth rate. This is materially ahead of initial expectations and so to support the company's next phase of growth, Maguar launched a continuation investment vehicle, allowing the opportunity for APEO and other new investors to participate in the business.

The Opportunity

· abrdn Private Equity originally invested in HRworks alongside Maguar Capital in 2020. Since then, our view on the key attractions of this market and HRworks' positioning within it have been validated and even enhanced.

· The company has provided consistent month-on-month growth with strong customer retention. The fundamentals of the business are best-in-class, with strong quality of earnings, high cash generation and excellent margins. The white space in Germany alone provides ample opportunity for HRworks to achieve its plan over the next five years.

· Going forward the business will increase its marketing/sales focus within existing geographies and modularise its software. There is an opportunity to increase penetration of its existing client base with a broader product offering.

· The company completed its first small acquisition in September 2022. There is significant potential for organic growth to be supplemented by inorganic activity. Add-ons could complement the current HCM suite (e.g. recruitment, HR analytics and organisational management) and/or help to expand in selected adjacencies (e.g. legal compliance, document management and e-signature).

· When the time eventually arrives to exit the investment, its strategic nature means that HRworks will be attractive to both trade buyers and large financial buyers with a software focus.

Portfolio Construction

The underlying portfolio consists of over 700 separate portfolio companies, largely within the European mid-market and spread across different countries, sectors and vintages. At 30 September 2023, 12 companies equated to more than 1% of portfolio NAV, with the largest single underlying company exposure equating to 2.1% (Action).

Geographic Exposure1

We believe that the portfolio is well diversified and positions APEO well as we continue to navigate this challenging macroeconomic environment. At 30 September 2023, 75% of underlying portfolio companies were headquartered in Europe (2022: 76%). APEO's underlying portfolio remains largely positioned to North Western Europe, with only 7% of underlying portfolio company exposure in Italy and Spain (2022: 6%). APEO is well diversified by region across North Western Europe, with the UK having the largest exposure at 15% (2022: UK 17%). North America equates to 24% of the total (2022: 23%).

1 Based on the latest available information from underlying managers. Figures represent percentage of total value of underlying portfolio company exposure. Geographic exposure is defined as the geographic region where underlying portfolio companies are headquartered. In addition to the above, 5% of underlying portfolio companies are based in European countries not separately disclosed above, while 1% are based in countries outside of Europe, excluding North America.

Sector Exposure1

At 30 September 2023 Information Technology and Healthcare represented a combined 41% of the portfolio (2022: 41%). When combined with Consumer Staples, these more stable, less cyclical sectors equate to over half of APEO's portfolio (2022: 52%). The other half of the portfolio is exposed to sectors that are typically more cyclical, notably Industrials, Consumer Discretionary and Financials. That said, there are sub-sectors within these areas that provide growth opportunities, such as Fintech and B2B Services, where businesses often have a valuable product or an essential service offering with a strong digital component. Some examples within our top 20 companies by underlying portfolio company exposure include ACT (Environmental Services), Funecap (Funeral Services), CFC (Specialist Insurance) and Planet (Payments).

Outlook

APEO is over two decades old and has remained consistently focused on partnering with a small group of leading private equity managers, principally in the European mid-market. We do not foresee a material change in the Company's investment strategy as we move forward. However, we do expect "direct investment", i.e. co-investments and single-asset secondaries, to continue to increase as a proportion of the portfolio and bring a number of benefits with it, not least lower costs and therefore the potential for higher returns.

In terms of the broader private activity market, we are not planning for an immediate uplift in deal activity as we move into 2024, despite some encouraging noises in the industry about the potential for a pick-up in levels. The uncertain financial market backdrop caused by the sharp increases in both inflation and interest rates has impacted both buyers and sellers' willingness to transact in the short term. Furthermore, availability and pricing of debt to finance new transactions will continue to be a challenge. 2023 was a tough year for private equity deal activity and whilst we can definitely see a scenario where deal volumes materially pick up in 2024, we continue to plan with caution.

APEO distributions held up well in 2023 given these headwinds and we do not currently expect the next 12 months to show a material increase in cash being returned to APEO. Even if we see an increase in deal activity in 2024, it will take time for portfolio exits to translate into distributions to APEO, due to the lag between transaction signing and closing.

For the same reason, we also expect drawdowns to fall next year, with fewer new transactions being struck in 2023 and the use of credit facilities by underlying fund investments creating a lag between deals being completed and cash being drawn from the Company. APEO has a strong balance sheet position and, as Manager, we always feel it's important to "plan for the worst" regarding the use of the Company's resources. Therefore, we will remain disciplined in the year ahead in terms of deploying APEO's cash into new opportunities.

That said, market uncertainty and volatility does provide a silver lining around the attractiveness of new investment opportunities. These periods tend to present differentiated opportunities such as corporate carve outs and public to private transactions, and family owners of attractive businesses can often be more willing to sell long-held assets for liquidity or portfolio reasons. Furthermore, entry multiples tend to be lower during these periods, compared to long-term averages. The aftermath of the dot com bubble and the global financial crisis are good examples of private equity's ability to take advantage of these periods of uncertainty and generate strong investment performance.

APEO's underlying portfolio has illustrated its resilience in the current backdrop, and we expect it to continue to demonstrate this going forward, given the quality of the portfolio, with many market-leading underlying companies offering mission critical, non-discretionary products and/or services. However, we are cognisant that sharp rises in both inflation and interest rates mean that portfolio companies will need to pass through pricing increases and manage their operations efficiently in order to maintain current margin levels and cash flows.

Whilst we are planning for market headwinds to continue in the short-term, our longer-term outlook on private equity and APEO remains bullish. In terms of deal activity levels, the record levels of capital raised by the industry (so called "dry powder") will need to be deployed over the next few years, which will help drive a convergence between buyer and seller pricing expectations and an eventual upturn in M&A. An increase in activity will, in turn, drive an uptick in portfolio company exits and distributions to APEO, especially given 49% of the underlying portfolio has been held for four years or more and should, in theory, be ripe for exit. As well as returning cash to APEO, distributions usually help drive additional NAV growth, given private equity firms tend to sell underlying companies at an uplift to their unrealised valuations two quarters prior.

More broadly, companies continue to stay private for longer and the governance model of private equity, through majority control and active ownership, provides the opportunity for hands-on value creation and for decisions to be taken more efficiently and effectively in response to changing market circumstances. The private equity firms that APEO partners with today are more sector specialised and have deeper value creation toolkits compared to, for example, before the global financial crisis. These firms are not reliant on low interest rates and financial engineering to create investment returns.

We believe that private equity is a long-term asset class, and we expect it to continue to deliver outperformance on both absolute and relative bases. Whilst current headwinds are unlikely to fully abate in the next 12 months, we take comfort in the private equity governance model, the quality of APEO's current portfolio and its set of core managers, and the opportunity to make attractive new investments during this period of relative uncertainty.

Alan Gauld,

Lead Investment Manager and Senior Investment Director

for abrdn Capital Partners LLP

30 January 2024

Responsible Investment and Sustainability

ESG Integration - embedded throughout the Manager's investment process

Due Diligence - Focus on Materiality

· ESG is a standard due diligence item for all new investments and an ESG section is included in all Investment Committee papers.

· We perform different materiality assessments depending on the type of investment opportunity being presented:

o Primary - primarily focuses on underwriting the private equity manager's ESG process and identify areas for engagement and improvement.

o Direct - primarily focuses on the ESG risks and opportunities impacting the business.

o Secondary - primarily focuses on ESG risks and exclusions.

Investments - Leverage Our Influence

· When we identify risks or potential for improvement, we work with our private equity managers to drive sustainability enhancements.

· We negotiate ESG reporting requirements and standards in legal documentation prior to investment.

Monitoring - Annual Assessments

· We produce an annual ESG survey focusing on selected areas of interest (e.g. employees' wellbeing or climate risk) while monitoring progress of our portfolio of private equity managers in terms of ESG integration.

· We monitor identified key performance indicators for client vehicles with a sustainability objective.

Reporting - Client Focused

· Task Force on Climate related Financial Disclosures ("TCFD") entity level report produced for the first time in June 2023.

· Reporting available for Sustainable Finance Disclosure Regulation ("SFDR") Article 8 products.

A Year in Brief

Focus in ESG in 2023

Sustainable Products and Climate Focus

· We defined a "sustainable investment" taxonomy for co-investments and are in the process of defining "impact investing" for primaries.

· We joined ICI initiatives to formalise our collaboration across industry.

· TCFD entity level report produced for the first time in June 2023.

Enhanced Reporting

· We have signed up to the ESG Data Convergence Initiative.

Enhanced Due Diligence and Engagement

· We have updated the Due Diligence Questionnaire process for primary, secondary and direct investments, piloting external advisor collaboration.

Achievements

· We have scored the highest mark in PRI's indirect private equity category. We were included in the first products qualified as Article 8+ under SFDR.

Case Study - H₂ green steel - Investment

A fully integrated, digitalised and circular plant in Boden, northern Sweden, H2 Green Steel will produce green steel, reducing CO₂ emissions by up to 95% compared to traditional steelmaking.

Lead Manager: Altor

APEO's investment: via Altor Fund V and Fund VI

Investment Year: 2021, 2022 and 2023

Company Size: (EV>€1bn)

Geographic Focus: Global

Sectors: Industrial

Company Overview

· H2 Green Steel ("H2GS") was founded in 2020 with the ambition to accelerate the decarbonisation of hard-to-abate industries.

· The company is starting with steel, building a fully integrated, digitalised and circular plant in Boden, northern Sweden.

· Currently under construction, its first steel plant is due to be operational by 2025/26.

· APEO will have exposure to H2GS through its primary fund investments in both Altor Fund V and Altor Fund VI.

Responsible Investment

· Conventional steelmaking is an essential industry in the global economy but is pollutive, responsible for 8-9% of global CO₂ emissions.

· H2GS's final steel product will have a 95% reduction in CO₂ emissions compared to traditional steel making. It aims to produce more than four million tonnes of "green steel" annually by 2030.

· H2GS has the ability to help materially decarbonise the industry and has signed customer agreements with a number of large, "blue-chip" corporations, across industries like automotive and consumer appliances.

· H2GS's activities address five of the UN Sustainable Development Goals ("SDGs").

APEO's Investment

· abrdn Private Equity has a long-term relationship with Altor, supporting the manager in every fundraise since its inception in 2003. APEO first partnered with Altor in 2014, via Altor Fund IV.

· Altor's partnership approach, credibility and track record in the Nordic and DACH mid-market are its traditional key points of difference. However, during the last decade Altor has also built market-leading capabilities in ESG and sustainability, in particular making a number of investments related to the "green transition".

· abrdn Private Equity has been able to monitor Altor's approach to ESG carefully, not least through periodic due diligence and the annual abrdn Private Equity Responsible Investment survey, in which Altor has consistently obtained the highest rating.

TEN LARGEST INVESTMENTS

at 30 September 2023