Sustainability-Related Disclosures

1. Disclosures relating to the Alternative Investment Fund Manager pursuant to Art. 3, 4 and 5 SFDR

   a. Sustainability Risks

The Magnetic Management GmbH, being an Alternative Fund Manager (“AIFM”) of alternative investment funds ("Financial Products"), takes sustainability risks into account when investing in unlisted, early-stage companies with technology-driven business activities ("Investee Companies"). Currently, sustainability risks are integrated in the investment process as part of the standard due diligence and risk assessment processes.

In accordance with the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (“Sustainable Finance Disclosure Regulation” or “SFDR”), “sustainability risk” means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment.

Sustainability risks such as a progressing climate change may lead to negative impacts on the assets of the Financial Products or their Investee Companies. With respect to climate change, there are in particular actual physical risks (e.g. extreme weather events) and transition risks (e.g. costs for the transformation of the energy system). In the field of good governance and with regards to social characteristics, there are, for example, risks concerning the reputation of Investee Companies or potential claimed damages. Corresponding political and regulatory measures may also lead to considerable costs and the reduction of asset values.

To the extent that sustainability risks materialize, this may result in a significant reduction of the Financial Products’ net asset value and thus have a strong adverse impact on returns.

   b. No consideration of adverse impacts of investment decisions on sustainability factors

The AIFM does not consider principal adverse impacts of its investment decisions on sustainability factors as set out in the SFDR.

“Principal adverse impacts” according to the SFDR are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Considering these impacts would require the AIFM to report according to a set list of indicators for which there is not sufficient data available to the AIFM. Until there is more practical guidance with regard to applying the detailed provisions on principal adverse

impacts with insufficient data, the AIFM will regularly review the possibility to consider principal adverse impacts.

At this point, however, due to the blind pool-character of the fund portfolios, the AIFM is not able to determine ex ante whether all of the Investee Companies will be providing sufficient data to properly consider all principal adverse impacts. As the AIFM is managing Financial Products, which will be minority shareholders in Investee Companies, the AIFM is not in the position to ensure the adherence to standards or high-quality reporting on all necessary data for the assessment of principal adverse impacts on sustainability factors. Moreover, gathering data from early-stage Investee Companies would often put a disproportionate burden on the relatively small management teams.

   c. Remuneration policies in relation to the integration of sustainability risks

The AIFM integrates sustainability risks in its remuneration policies. As a sub-threshold manager, the AIFM is not required to have a comprehensive remuneration policy.

Disclosures relating to the Financial Product pursuant to Art. 10 SFDR

   a. Summary / Zusammenfassung

Magnetic Core III GmbH & Co. KG (“Financial Product”) promotes environmental and social (“E/S”) characteristics but does not have a sustainable investment objective.

Specifically, the Financial Product promotes the following E/S characteristics:

  • No investment in coal, crude oil, natural gas or other natural resources business

  • No investment in the production of and trade in tobacco, distilled alcoholic beverages and related products

  • No investment in the production of and trade in weapons and ammunition

  • No investment in casinos, equivalent enterprises and pornography

The Financial Product invests in unlisted, early-stage companies with technology-driven business activities. Of these investments, none are targeted as sustainable investments but all are targeted to promote E/S characteristics.

The attainment of the E/S characteristics promoted by the Financial Product is being monitored throughout the lifecycle of an investment. The Financial Product will use different methods for the attainment and monitoring of the E/S characteristics. Further, the Financial Product will be conducting an autonomy and access analysis as well as establish an evaluation framework for the effective impact of Investee Companies. The collected data will be reviewed and evaluated and, on this basis, the methodology used will be refined. By this, existing limitations to the methodologies and data are being addressed.

The Financial Product carries out a due diligence process with every investment, among other things including negative screening lists.

To ensure an appropriate reaction to sustainability-related incidents, the Financial Product has implemented measures and internal procedures.

Magnetic Core III GmbH & Co. KG (das “Finanzprodukt”) bewirbt ökologische und soziale (“E/S”) Merkmale, hat aber kein nachhaltiges Investitionsziel.

Insbesondere bewirbt das Finanzprodukt die folgenden E/S-Merkmale:

  • Keine Investition in Kohle, Rohöl, Erdgas oder andere natürliche Ressourcen

  • Keine Investition in die Herstellung von und den Handel mit Tabak, destillierten alkoholischen Getränken und verwandten Produkten

  • Keine Investition in die Herstellung von und den Handel mit Waffen und Munition

  • Keine Investition in Kasinos, gleichwertige Unternehmen und Pornographie

Das Finanzprodukt investiert in nicht börsennotierte Unternehmen in der Frühphase mit technologieorientierten Geschäftsaktivitäten. Von diesen Investitionen sind keine als nachhaltige Investitionen gedacht, aber alle zielen darauf ab, E/S-Merkmale zu fördern.

Die Verwirklichung der durch das Finanzprodukt geförderten E/S-Merkmale wird während des gesamten Lebenszyklus einer Investition überwacht. Das Finanzprodukt wird verschiedene Methoden für die Erreichung und Überwachung der E/S-Merkmale verwenden. Außerdem wird das Finanzprodukt eine Autonomie- und Zugangsanalyse durchführen und einen Bewertungsrahmen für die tatsächliche Wirkung der investierten Unternehmen erstellen. Die gesammelten Daten werden überprüft und bewertet, und auf dieser Grundlage wird die verwendete Methodik angepasst. Auf diese Weise wird den bestehenden Beschränkungen der Methoden und Daten begegnet.

Das Finanzprodukt führt bei jeder Investition einen Due-Diligence-Prozess durch, der unter anderem auch Negativlisten umfasst.

Um eine angemessene Reaktion auf nachhaltigkeitsbezogene Vorfälle zu gewährleisten, hat das Finanzprodukt Maßnahmen und interne Verfahren eingeführt

   b. No sustainable investment objective

This Financial Product promotes environmental or social characteristics, but does not have as its objective sustainable investment

   c. Environmental or social characteristics of the Financial Product

The Financial Product promotes environmental and social (“E/S”) characteristics through the incorporation of ESG considerations within its investment processes.

Specifically, the Financial Product promotes the following environmental characteristics:

  • No investment in coal, crude oil, natural gas or other natural resources business

Further, the Financial Product promotes the following social characteristics:

  • No investment in the production of and trade in tobacco, distilled alcoholic beverages and related products

  • No investment in the production of and trade in weapons and ammunition

  • No investment in casinos, equivalent enterprises and pornography

The above listed factors are not considered as conclusive or final, since the investments of the Financial Product will only be entirely determined at the end of the investment phase (so-called “blind pool”). Thus, the factors may have to be refined at a later date.

   d. Investment strategy

i. Investment strategy

The Financial Product builds a portfolio of equity and quasi-equity investments in selected early-stage Investee Companies with technology-driven business activities with a geographical focus on Europe, North America and Asia. The Financial Product is looking to invest in Investee Companies that (i) contribute to systems-level change in important fields, through the use of technology as a key lever, (ii) sustainably improve access to fundamental services or products for users, customers or stakeholders and (iii) contribute on a micro- and/or macro-level to autonomy from ecological, political or economic limitations, and to liberal, open, independent societies or a sustainable ecological development.

The Financial Product promotes E/S characteristics in the entire investment process consisting of the following phases:

  • Pre-Investment (sourcing and screening)

  • Investment (due diligence)

  • Holding (portfolio management, monitoring, reporting)

  • Exit (performance evaluation, disclosure)

The Financial Product shall observe the German Capital Investment Code (KAGB) and the EuVECA Regulation (Regulation (EU) No 345/2013) with regard to its investment activities and will seek to obtain a seat on the supervisory/advisory boards of Investee Companies.

In order to comply with each of the E/S characteristics set out above the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase.

First, the Financial Product applies a negative screening on all potential investments to determine unsuitable investments. The negative screening contains exclusion lists with regards to certain branches and products as stated above. Second, the Financial Product analyzes potential investments regarding their systemic impact and their improvement of access to fundamental services in accordance with the investment strategy.

ii. Assessment of good governance practices

Good governance practices include sound management structures, employee relations, remuneration of staff and tax compliance. The assessment of good governance practices of Investee Companies is incorporated in the Financial Product’s legal due diligence as far as good governance practices have been adopted by law. The Financial Product undertakes to monitor good governance practices through an ongoing dialogue with the Investee Companies.

   e. Proportion of investments

The Financial Product does not make any sustainable investments within the meaning of the SFDR and the Taxonomy Regulation (Regulation (EU) 2020/852). The Financial Product targets that all investments are aligned with the above-mentioned E/S characteristics. Since the Financial Product’s asset portfolio consists a blind pool, it reserves the discretion to make investments in “Other” assets (i.e., investments that are neither aligned with the E/S characteristics, nor are qualified as sustainable investments) in accordance with its investment guidelines as provided in the fund documents.

The Financial Product will directly hold equity and quasi-equity investments in the Investee Companies.

   f. Monitoring of environmental or social characteristics

The Financial Product undertakes to monitor E/S characteristics on an ongoing basis. After an investment has been made, the Financial Product will conduct autonomy and access analyses. Further, the Financial Product will establish an evaluation framework for the effective impact of Investee Companies in accordance with the autonomy and access analyses. Additionally, the performance of the sustainability indicators used to measure the attainment of the E/S characteristics is monitored throughout the lifecycle of an investment.

   g. Methodologies for environmental or social characteristics

The Financial Product applies the following methods to assess its alignment with the promotion of the E/S characteristics listed above:

  • Monitoring of the sustainability indicators used to measure the attainment of the E/S characteristics, i.e. the share of investments aligned with each characteristic

  • Establishment of an evaluation framework for the effective impact of Investee Companies in accordance with the autonomy and access analysis

Based hereon, the Financial Product may apply one or a combination of the following measures to adjust its alignment with the promotion of the E/S characteristics listed above:

  • Discard investment opportunities

  • Target agreements with Investee Companies

  • Execution of minority shareholder rights in Investee Companies

  • Execution of rights as advisory board member to Investee Companies

   h. Data sources and processing

Data for measuring the attainment of E/S characteristics is collected by the AIFM’s investment and research team directly from each Investee Company. The collection of data may take the form of a questionnaire or an interview. Additional data sources include scientific databases and third-party data providers.

Certain measures are taken to ensure data quality including (but not limited to): enhancing the readability of questionnaires including the definition of technical terms; ensuring the questionnaire is completed or the interview is given by a qualified respondent of the Investee Company; and including the option to provide documentary evidence to support responses where appropriate. Data is extracted from questionnaire or interview responses and in its processing may be aggregated to form summary statements at the level of the Financial Product.

Data is collected in both quantitative and qualitative forms. The proportion of data that is estimated by Investee Companies is not quantifiable in advance. No external sources are used to verify the data received from Investee Companies.

   i. Limitations to methodologies and data

An identified limitation to the methodologies described above is the dependence on the Investee Companies as a source of information. Also, with regard to the autonomy and access analysis the effective impact of Investee Companies can only be estimated. The future development can, however, not be predicted.

These limitations do not affect the attainment of the E/S characteristics promoted by the Financial Product as the attainment itself will be reflected in the gathered data. In order to address these limitations, ongoing dialogue is maintained with Investee Companies to gain a more comprehensive understanding.

   j. Due diligence

In order to attain each of the E/S characteristics set out above the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase. As stated above, the Financial Product applies a negative screening on all potential investments to determine unsuitable investments. Further, the Financial Product analyzes potential investments regarding their systemic impact and the improvement of access to fundamental services as described above in the investment strategy.

   k. Engagement policies

The Financial Product will use the following measures to engage in ESG-related matters of Investee Companies and to adjust its alignment with the promotion of the E/S characteristics listed above:

  • Discard investment opportunities

  • (Contractual) Target agreements with Investee Companies

  • Execution of minority shareholder rights in Investee Companies

  • Execution of rights as advisory board member to Investee Companies

In order to respond to ESG related incidents or controversies appropriately, the Financial Product has implemented internal procedures where an appropriate escalation mode is identified.