Pillar 3 Disclosure - as at 31st March 2020
Russell Clark Investment Management Ltd (the “Firm”) was incorporated in England on 14 July 2000 and is authorised and regulated by the Financial Conduct Authority (the “FCA”). It is a full scope Alternative Investment Fund Manager (“AIFM”) able to provide discretionary investment management services to Alternative Investment Funds (“AIFs”) and segregated managed accounts. The Firm is categorised by the FCA as a collective portfolio management investment firm (“CPMI”) and a BIPRU (Prudential sourcebook for Banks, Building Societies and Investment Firms) Limited Licence investment firm for regulatory capital purposes.
The Directors of the Firm determine its business strategy and the risk appetite. They have designed and implemented a risk management framework that recognizes the risks that the business faces as part of its Internal Capital Adequacy Assessment Process (”ICAAP”). The Directors also determine how those risks may be mitigated, managed and assessed on an ongoing basis. The Directors meet on a regular basis and discuss projections for profitability, liquidity, regulatory capital, business planning and risk management. The Firm’s ICAAP is formally reviewed annually, but will be amended should there be any material changes to the Firm’s business or risk profile.
As an AIFM, the Firm is mainly exposed to business and operational risk; however there is additional exposure to credit risk and foreign exchange position risk. These exposures are regarded as typical for a business engaged in investment management.
- Business risk - This includes the risk of reduction in assets under management, the loss of key staff and the failure of the Firm’s control infrastructure. Business risks and arrangements for their mitigation are assessed as part of the ICAAP.
- Operational risk - This covers a range of operational exposures from risk of clerical errors to risk of breach of a Fund’s investment objectives. Legal and reputational risks are also included. Operational risks and their mitigation are assessed as part of the ICAAP.
- Credit risk - This includes the Firm’s exposure to its clients for non-payment of management and performance fees and counterparty exposure relating to the Firm’s bank balances and other debtors. This is monitored by the Chief Operating Officer ("COO") and Fund Controller.
- Market risk - The risk is the exposure to foreign exchange fluctuations due to investment management and performance fees being denominated in currencies other than sterling.
As a CPMI, the Firm is subject to both the regulatory capital regimes of the Alternative Investment Fund Managers Directive (“AIFMD”), in respect of its Alternative Investment Funds (“AIFs”), and relevant provisions applicable to investment firms contained in the Capital Requirement Directive (“CRD”), as amended, for the Firm.
Capital requirements arising from Pillar I and Pillar II of the CRD are compared to any higher requirements arising from the AIFMD asset based capital calculation and professional indemnity insurance (“PII”) elements to derive the total regulatory capital required by the Firm.The Pillar I capital requirement is the greater of:
- a base capital requirement of Euro 50,000; or
- the sum of its market and credit risk requirements; or
- the Fixed Overhead Requirement (“FOR”), representing a quarter of the Firm’s audited fixed annual expenditure.
Pillar II capital is calculated by the Firm as representing any additional capital to be maintained against any risks not adequately covered under the requirement in Pillar I as part of its ICAAP.
The capital resources of the business comprise Tier 1 capital with no deductions.
It is the Firm’s experience that the FOR establishes its capital requirements with market and credit risks not being material. The Firm applies the standardised approach, being 8% of the relevant risk weighted exposure amount, to credit risk arising on outstanding investment management fees and bank balances. The Firm’s ICAAP has confirmed that no additional Pillar II capital is required in excess of its Pillar I capital requirement.
As at 31 March 2020 the Firm’s combined regulatory capital position is:
|Capital Resources: Share Capital and Audited Reserves||1,000|
|Total Capital Requirement: Fixed Overhead Requirement (and AIFMD PII capital requirement)||548|
The aim of the BIPRU Remuneration Code (the “Code”) is to ensure that firms have risk focused remuneration policies which promote and are consistent with effective risk management, and do not expose firms to excessive risk.
The Firm is classified as a Proportionality Level Three Firm, the lowest risk category as it does not manage or trade proprietary positions. As a result the Firm can dis-apply many of the technical requirements of the Code and apply proportionality as determined by the FCA.
The Firm is also subject to the AIFMD Remuneration Code but, has taken into account the FCA’s view that the application of the AIFM Remuneration Code should satisfy compliance with the BIPRU Remuneration Code insofar as the AIFM Code provisions are deemed equivalent. Having considered the application of both Remuneration Codes, the Firm is satisfied that its remuneration arrangements are not required to vary depending upon which Remuneration Code is applicable.
Under the FCA’s BIPRU Rules firms are required to disclose their remuneration policy and practices, as well as an aggregate quantitative disclosure for staff assessed as having a material impact on its risk profile, including senior management (“Code Staff”). Remuneration as defined by the Code includes all forms of fixed remuneration and variable remuneration but excludes return on equity (capital).
The Firm has adopted policies in relation to the Firm’s remuneration arrangements which address potential conflicts of interest arising from such arrangements by taking into account the controls in place to guard against the Firm’s authorised persons being rewarded for taking inappropriate levels of risk.
The Firm is satisfied that the policies in place are appropriate to its size, internal organization and the nature, scope and complexity of its activities.
Decision Making Process
The Firm’s Remuneration Policy is determined by the Chief Executive Officer (“CEO”) and Chief Financial Officer, who is also the Firm’s Compliance Officer (“CFO/CO”). The Firm has assessed its members and staff and concludes that only six members of staff qualified as Code Staff during the performance year to 31 March 2019.
Link between Pay and Performance
Remuneration subject to the Code is based on an assessment of the profitability of the Firm, an individual’s performance and their contribution to the business carried on by the Firm.
Overall remuneration includes a profit allocation which is determined by the CEO and CFO/CO of the Firm reflecting individual performance as well as the Firm’s overall performance.
Quantitative Remuneration Data
The Firm conducts only investment management business. The total aggregate remuneration, as defined in the Code, for senior management Code Staff for the performance year to 31 March 2020 was £245,000 and was all fixed remuneration. £276,000 of which £266,000 was fixed and £10,000 was variable remuneration was awarded to other Code Staff whose actions have a material impact on the risk profile of the Firm.