Risks associated with investments

Risks associated with investments

Liquidity risk
Liquidity risk is defined as the difficulty of transforming your investment into cash. Venture capital investments are not traded on secondary securities markets but under agreement between parties. For this reason, it can be difficult to sell such holdings and convert them into cash in a short period of time. This lack of liquidity may result in the penalisation of the price obtained to unwind a position or even the impossibility of unwinding the position at a given time.
Trading on regulated markets or MTFs may provide greater liquidity for the shares, although depending on their capitalisation and trading volume, they may be more or less liquid. The requirement in some markets to engage a liquidity provider will contribute to increasing the shares’ liquidity. However, the existence of a shareholders’ agreement could limit the liquidity of the shares.
This risk also affects portfolio investments as it may be difficult to sell the asset at the end of the investment period at a suitable price as these are not listed assets and they are not traded on an organised market.

Concentration risk
Sectoral, geographical, asset or any other type of concentration implies the assumption of greater risks because negative results in one of the assets will have a greater impact on the overall results of the portfolio, as it will have greater relative importance than in the case of a more diversified portfolio.

Counterparty risk
Counterparties’ failure to meet their contractual obligations may result in potential losses on the investment.

Interest rate risk
Exposure to changes in market interest rates can have an impact on investments, such as difference between the interest rate review periods or maturity dates of investment transactions relative to borrowings.

Inflation risk
Fluctuations in inflation may impact the profitability and value of an investment.

Credit risk
Refers to the failure by an issuer of fixed-income assets to meet its obligations with respect to the payment of interest, principal, or both.

Valuation risk
The value of the shares will be determined by the underlying book value or carrying value of the company, which is calculated by dividing its net assets by the number of shares issued. This may make it difficult to assess the return on investment, which may lead to increased uncertainty about the value of the investment.
The valuation of shares when they are listed on a regulated market or an MTF will be published on a daily basis in the market where they have been admitted to trading.

Risk of loss of the special tax scheme
If the SOCIMI ceased to qualify for the special tax scheme, it would be taxed under the general corporate income tax regulations in the period in which this occurred, for the reasons set our in the relevant regulations. If the special tax regime ceases to be applicable, it cannot be used again until at least three years after the end of the last tax period in which it was applicable.

Risk of total loss of the investment
The shareholder holds an aliquot part of the company’s share capital and accordingly could lose the total amount invested in the event of dissolution or liquidation of the company.