Investment Objective and Policy

Investment Objective

The Schiehallion Fund Limited seeks to generate capital growth for investors through making long-term minority investments in later stage private businesses that the Company considers to have transformational growth potential and to have the potential to become publicly traded.

Principle and Emerging Risks and Uncertainties

The principal and emerging risks facing the Company are:

-     Investment and Strategic Risks - Liquidity of investments; Market, Economic, Political and Environmental Risks; Valuation Risk; Investment Strategy Risk; and Discount Risk.

-     External Risks - Political and Associated Economic Risk; Legal and Regulatory Risk; and Covid-19.

-     Operational Risks - Performance and Reliance on Third Party Service Providers; Cyber Security Threats; and Key Professionals.

-     Emerging Risks - Cyber risk and coronavirus; and Environmental Social and Governance issues (ESG).

An explanation of these risks and how they are managed is set out on pages 5 to 8 of the Company's Annual Report and Financial Statements for the year to 31 January 2021 which is available on the Company's website: schiehallionfund.com. The principal risks and uncertainties have not changed since the date of the Annual Report and Financial Statements.

Responsibility Statement

The Directors of The Schiehallion Fund Limited confirm that to the best of their knowledge:

a)   the Interim Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Directors have elected to prepare financial statements that comply with International Financial Reporting Standards as issued by the International Accounting Standards Board;

b)   the Interim Management Report includes a fair review of the information required by:

i)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

ii)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period.

By Order of the Board

Linda Yueh

Chairperson

2 September 2021

Interim Management Report

In April this year, Schiehallion raised US$700m in capital via a conversion or C share issuance. We want to say a deep 'thank you' to everyone who supported and participated in this process, and to welcome our new C shareholders. At the time of the raise, the capital in the Schiehallion ordinary share class was 95% invested.

This raise represents an important bridge. In our long-term portfolio management task, we make no distinction between our ordinary and C shareholders. Whilst in the short term both have exposure to different parts of the Schiehallion portfolio, over the medium to long term, everyone will be a shareholder in the combined portfolio. The capital raised therefore enables Schiehallion ordinary shareholders to benefit from the continued flow of investment opportunities over the medium term until the recycling of capital within the portfolio, from maturing investments to new investments, starts occurring naturally. Given our investment time horizon is five to ten years, and beyond, this is not a process that we expect to start overnight.

Indeed, it remains our thesis that it is possible to gain access to some of the best opportunities in private markets via being a truly long-term and aligned investor. Sadly, many early-stage private investors are constrained to become forced sellers after private companies pass into the listed markets. This necessarily drives an increased investor focus on avoiding short-term tactical missteps that is often frustrating to founders and management teams who remain intent on the seizing the long-term strategic opportunity. The Schiehallion offering, of being a long-term investor for whom listing events are just another step in the journey, is designed to stand out in this context.

We continue to see encouraging signs of this thesis playing out. Our pipeline remains as healthy as ever, with the team continuing to broaden our contacts across industries in North America, as well as engaging more deeply with companies in international geographies that are after many years approaching our investment sweet-spot such as India and Brazil, and working closely with our Shanghai team to engage with a new generation of Chinese local champions. We are also continuing to monitor the evolving regulatory environment in China, with these factors being incorporated into our investment analysis under the 'social license to operate' component of our research framework.

Drawing on this work, the last six months has seen us deploy capital into seven new investee companies: Brex, Faire, Loft, Daily Hunt, Rappi, Masterclass and PsiQuantum. Within their respective spheres - small business finance, wholesale, real estate, social media, delivery, entertainment and computer hardware - each has the clear potential to build a profoundly distinctive and valuable operation.

A couple of these businesses are particularly worth highlighting. Loft, Daily Hunt and Rappi are all companies based in geographies that we've been deepening our understanding of and sourcing work in for many years. In the case of two of them, Daily Hunt and Rappi, our conversations with the businesses have spanned much of that time. However, it's only now that we're finding that the operations and opportunities in these geographies are hitting the sweet spot for us to start deploying capital. We're excited to see great bottom-up investment cases emerging in these and other geographies as their innovation ecosystems ripen. In the case of Daily Hunt, it's perhaps also worth noting that the investment was made entirely from ordinary share capital as it is not possible for the C share pool to access the Indian market.

PsiQuantum also deserves a mention. The vast majority of our investee companies have robust revenue lines and clear unit economics, with the main debate focused on business model advantage and the scope for scale. This is very much our sweet spot. That said, we believe that there is room in the portfolio for a minority of companies with different characteristics. These businesses are typically in industries where value is created less by refinements in product-market fit or distribution, and more via technological innovations. Here we seek to clearly understand the technical abilities of the core team and their track record in reaching key milestones. PsiQuantum, whose work in photonic quantum computing leads the field, is an operation that we have followed over many years; however, we now believe that it has turned a corner in de-risking its approach, and so has become a highly attractive investment opportunity in its own right. As with any holding, there can be no certainty of success.

We have also seen Oscar Health, Wise and Zymergen enter the publicly listed section of the portfolio. Per our philosophy, we are continuing to be patient and long-term supporters of these businesses. Short-term volatility in share prices in the months and quarters immediately following a listing matters less to us than tracking whether fundamental business performance continues to support the long-term investment opportunity. We're lucky to be able to work within the broader Baillie Gifford investment floor, with our public market colleagues adding an extra layer of analysis to our own as these businesses become more widely appreciated within public markets.

Across the portfolio, many of our holdings have continued to perform extremely strongly, the difficulties of the Covid-19 era notwithstanding. In the last six months, we have taken advantage of opportunities to put more capital to work in existing holdings, including Workrise, Tanium, Stripe, SpaceX, Northvolt and Epic Games - all cases where our conviction in the upside has deepened faster than their valuations have risen. Other holdings have had a tougher time of it, with the focus remaining on keeping their organisations and balance sheets stable through the pandemic. Here, as before, our conversations with management teams have focused on the importance of retaining key employees and customer relationships, preserving their ability to grow profitably as economic conditions improve.

The principal risks and uncertainties facing the Company are set out above.

Peter Singlehurst

Robert Natzler