UK Stewardship Code
As a firm authorised and regulated by the FCA, Albemarle Asset Management Limited is required to either disclose its compliance with or explain its non-compliance with the principles set out in the UK Financial Reporting Council’s Stewardship Code (the “Stewardship Code”).
The Code is a voluntary code and sets out a number of principles relating to engagement by investors with UK equity issuers. Investors that commit to the Code can either comply with it in full or choose not to comply with aspects of the Code, in which case they are required to explain their non-compliance.
Albemarle Asset Management Limited manages assets across a number of discretionary strategies, however the investment processes do not involve significant engagement with underlying investee companies in any of these strategies.
While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code.
Pillar 3 Disclosure
The Capital Requirements Directive (‘the Directive’) of the European Union establishes a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain.
In the United Kingdom, the Directive has been implemented by the Financial Conduct Authority (‘FCA’) in its regulations through the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).
The FCA framework consists of three ‘Pillars’:
Pillar 1 sets out the minimum capital amount that meets the Firm’s credit, market and operational risk capital requirement;
Pillar 2 requires the Firm to assess whether its capital reserves, processes, strategies and systems are adequate to meet pillar 1 requirements and further determine whether it should apply additional capital, processes, strategies or systems to cover any other risks that it may be exposed to.
Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position to encourage market discipline.
The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.
The Pillar 3 disclosure document has been prepared by Albemarle Asset Management Limited (“The Firm”) in accordance with the requirements of BIPRU 11 and is verified by the senior management. Unless otherwise stated, all figures are as at the financial year-end.
Pillar 3 disclosures will be issued on an annual basis after the year end and published with the annual accounts.
We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information for the purpose of making economic decisions about the Firm.
In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties.
We have made no omissions on the grounds that it is immaterial, proprietary or confidential.
Scope and application of the requirements
The Firm is authorised and regulated by the FCA and as such is subject to minimum regulatory capital requirements. The Firm is categorised as a Limited Licence Firm by the FCA for capital purposes.
It is an investment management firm and as such has no trading book exposures.
The Firm is not a member of a group and so is not required to prepare consolidated reporting for prudential purposes.
The Firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The Senior Management team takes overall responsibility for this process and the fundamental risk appetite of the Firm. The team has responsibility for the implementation and enforcement of the Firm’s risk principles.
Senior Management meet on a regular basis and discuss current projections for profitability, cash flow, business planning and risk management. Senior Management engage in the Firm’s risks though a framework of policy and procedures having regard to the relevant laws, standards, principles and rules (including FCA principles and rules) with the aim to operate a defined and transparent risk management framework. These policies and procedures are updated as required.
The Senior Management team has identified that business, operational, market and credit are the main areas of risk to which the Firm is exposed. Annually the Senior Management team formally review their risks, controls and other risk mitigation arrangements and assess their effectiveness.
Management accounts demonstrate continued adequacy of the Firm’s regulatory capital and are reviewed on a regular basis.
Appropriate action is taken where risks are identified which fall outside of the Firm’s tolerance levels or where the need for remedial action is required in respect of identified weaknesses in the Firm’s mitigating controls.
Specific risks applicable to the Firm come under the headings of business, operational, credit and market risks.
The Firm’s revenue is reliant on the performance of the existing funds under management and its ability to launch new funds/obtain new mandates. As such, the risk posed to the Firm relates to underperformance resulting in a decline in revenue and adverse market conditions hindering the launch of new funds and ultimately the risk of redemptions from the funds managed by the Firm. This risk is mitigated by the significant levels of capital held by the Firm which will continue to cover all the expenses of the business.
The Firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.
The Firm has identified a number of key operational risks to manage. These relate to systems failure, failure of a third party provider, potential for serious regulatory breaches, and market abuse. Appropriate polices are in place to mitigate against these risks, which includes taking out adequate professional indemnity insurance, compliance training for employees and business continuity planning.
The Firm is exposed to credit risk in respect of its debtors, investment management and performance fees billed and cash held on deposit.
Management fees are drawn monthly or quarterly from the funds managed and performance fees are drawn quarterly or annually where applicable. The Firm considers that there is little risk of default by its clients. All bank accounts are held with large international credit institutions.
Given the nature of the Firm’s exposures, no specific policy for hedging and mitigating credit risk is in place. The Firm uses the simplified standardised approach detailed in BIPRU 3.5.5 of the FCA Handbook when calculating risk weighted exposures of 1.6% (Cash in Bank) and 8% in respect of its other assets.
The Firm takes no market risk other than foreign exchange risk in respect of its accounts receivable and cash balances held in currencies other than GBP.
Since the Firm takes no trading book positions on its balance sheet, the primary market risk relates to fluctuations in the value of its revenues due to movements in currency rates. The Firm maintains multi-currency bank accounts and uses currency contracts to hedge this risk.
The Firm calculates its foreign exchange risk by reference to the rules in BIPRU 7.5.1 of the FCA Handbook and applies an 8% risk factor to its foreign exchange exposure.
The Firm is required to maintain sufficient liquidity to ensure that there is no significant risk that its liabilities cannot be met as they fall due or to ensure that it can secure additional financial resources in the event of a stress scenario.
The Firm retains an amount it considers suitable for providing sufficient liquidity to meet the working capital requirements under normal business conditions. The Firm has always had sufficient liquidity within the business to meet its obligations and there are no perceived threats to this given the cash deposits it holds. Additionally, it has historically been the case that all management fee debtors are settled promptly, thus ensuring further liquidity resources are available to the Firm on a timely basis. The cash position of the Firm is monitored by the Senior Management on a monthly basis.
The Firm maintains a liquidity risk policy which formalises this approach.
The main features of the Firm’s capital resources for regulatory purposes are as follows as at 31/12/2018:
Tier 1 Capital £455, 000
Tier 2 Capital –
Tier 3 Capital –
Total capital resources requirement £455, 000
Our Firm is small with a simple operational infrastructure. Its market risk is limited to foreign exchange risk on its accounts receivable in foreign currency, and credit risk from management and performance fees receivable from the funds under its management. The Firm follows the standardised approach to market risk and the simplified standard approach to credit risk.
The Firm is not required to calculate an operational risk capital charge though it considers this as part of its process to identify the level of risk based capital required.
As discussed above the Firm is a limited licence firm and as such its capital requirements are:
– The sum of the market & credit risk requirements
The FOR is calculated, in accordance with FCA rules, based on the Firm’s previous years audited expenditure. The Firm has adopted the standardised approach to credit and market risk and the above figures have been produced on that basis. The Firm is not subject to an operational risk requirement.
Remuneration Code Disclosure
Albemarle Asset Management Limited (“the Firm”) is authorised and regulated by the Financial Conduct Authority as a Limited Licence Firm and so, it is subject to FCA Rules on remuneration. These are contained in the FCA’s Remuneration Code located in the SYSC Sourcebook of the FCA’s Handbook. The Remuneration Code (“the RemCode”) covers an individual’s total remuneration, fixed and variable. The Firm incentivises staff through a combination of the two.
Our policy is designed to ensure that we comply with the RemCode and our compensation arrangements:
- are consistent with and promotes sound and effective risk management;
- do not encourage excessive risk taking;
- include measures to avoid conflicts of interest; and
- are in line with the Firm’s business strategy, objectives, values and long-term interests.
Enshrined in the European remuneration provisions is the principle of proportionality. The FCA have sought to apply proportionality in the first instance by categorising firms into 3 tiers. The Firm falls within the FCA’s third proportionality tier and as such this disclosure is made in line with the requirements for a Level three proportionality Firm.
Application of the requirements
We are required to disclose certain information on at least an annual basis regarding our remuneration policy and practices for those staff whose professional activities have a material impact on the risk profile of the Firm. Our disclosure is made in accordance with our size, internal organisation and the nature, scope and complexity of our activities.
The Firm’s policy has been agreed by the Senior Management in line with the RemCode principles laid down by the FCA.
Due to the size, nature and complexity of the Firm, we are not required to appoint an independent remuneration committee.
The Firm’s policy will be reviewed as part of annual process and procedures, or following a significant change to the business requiring an update to its internal capital adequacy assessment.
The Firm’s ability to pay bonus is based on the performance of firm overall and derived after the fund’s managed returns have been calculated by client appointed third party administrators.
Individuals are rewarded based on their contribution to the overall strategy of the business.
- Investment Generation
b. Investment Trading
c. Sales & Marketing
Other factors such as performance, reliability, effectiveness of controls, business development and contribution to the business are taken into account when assessing the performance of the senior staff responsible for the infrastructure of the Firm.
In accordance with CRD III and CEBS guidance the Firm takes a proportionate approach to its Remuneration Code disclosures in line with the nature, scale and complexity of the Firm and as such has chosen not to disclose exact remuneration figures in regards to the remuneration of the four Code Staff identified by the Firm’s Policy. Furthermore, all discretionary remuneration is directly related to the performance of our managed entities and as such staff interests are intrinsically aligned with the interest of the Firm and its Clients vis-à-vis remuneration and performance.
We may omit required disclosures where we believe that the information could be regarded as prejudicial to the UK or other national transposition of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.
We have made no omissions on the grounds of data protection.