CORE CAPITAL PARTNERS LLP
Pillar 3, REMUNERATION AND STEWARDSHIP DISCLOSURE
31st March 2018
Pillar 3 Disclosure
Core Capital Partners LLP (the “Firm”) is authorised and regulated by the Financial Conduct Authority (the “FCA”). The Firm is a UK domiciled discretionary investment manager to professional clients and unregulated collective investment schemes. The Firm is a full scope Alternative Investment Fund Manager ("AIFM") and categorised as a collective portfolio management investment firm by the FCA for capital purposes. The Firm reports on a solo basis. The Firm’s Pillar 3 disclosure fulfils the Firm’s obligation to disclose to market participants’ key pieces of information on a firm’s capital, risk exposures and risk assessment processes.
We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be likely to change or influence the decision of a reader relying on that information. 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.
The Firm's Partners determine its business strategy and the level of risk acceptable to the Firm. In conjunction with the Head of Finance, they have designed and implemented a risk management framework that recognises the risks that the business faces and how those risks may be monitored and mitigated and assess on an ongoing basis. The Firm has in place controls and procedures necessary to manage those risks.
The Firm considers the following as key risks to its business:
Business Risk – This risk represents a fall in assets under management or the loss of key staff which may reduce the fee income earned by the Firm and hinder its ability to finance its operations and reimburse its expenses. Business risks are assessed and mitigated as part of the Internal Capital Adequacy Assessment Process (”ICAAP”).
Market risk – As the Firm does not hold any trading book positions on its balance sheet, the main market risk it could potentially face relates to fluctuations in the value of its revenues due to movements in currency rates. However, all fees are paid in sterling and the Firm has no currency exposure.
Operational risk – This risk covers a range of operational exposures from the risk of the loss of the key personnel to the risk of the provision of investment advice. Legal and reputational risks are also included within the category of operational risk. Operational risks and how they can be mitigated are assessed as part of the ICAAP.
Credit risk – This risk relates to the exposure to the Funds for non-payment of management and performance fees and counterparty exposure relating to the Firm’s bank balances and any other debtors. This is monitored by the Firm’s Head of Finance.
Core Capital Partners LLP is a Limited Liability Partnership and its capital arrangements are established in its Partnership deed. Its capital contains only members’ capital contributions.
Pillar 1 capital is the higher of:
1. the base capital requirement of €125,000;
2. the sum of market and credit risk requirements; and
3. the Fixed Overhead Requirement (“FOR”).
In addition, the Firm, on account of its classification as a full-scope AIFM, is subject to a parallel "own funds" requirement as follows:
The higher of:
1. the funds under management requirement, subject to a minimum of €125,000; and
2. the own funds based on fixed overheads requirement;
Plus whichever is applicable of:
a. the professional negligence capital requirement; or
b. the PII capital requirement.
Although the foregoing “own funds” requirement is not a component of the “Three Pillars” regime, it is likely that the Firm’s “own funds” requirement will exceed its Pillar 1 requirement.
Pillar 2 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 1 as part of its ICAAP. When making this calculation, the Firm also takes into account the own funds requirement detailed above, in particular where the own funds exceeds Pillar 1 capital (and the extent to which the Firm is able to use capital instruments to fulfill both requirements).
It is the Firm’s experience that its Pillar 1 capital requirement normally consists of the FOR, although market and credit risks are reviewed monthly. The Firm applies a standardised approach to credit risk, applying 8% to the Firm risk weighted exposure amounts, consisting mainly of investment management and performance fees due but not paid, and bank balances. Having performed the ICAAP, the Firm has concluded that no additional capital is required in excess of its Pillar 1 capital requirement.
As at the date of this disclosure the Firm’s regulatory capital position is:
Tier 1 capital
Total capital resources, net of deductions
The Firm’s ICAAP assesses the adequacy of its internal capital to support current and future activities. This process includes an assessment of the specific risks to the Firm, the internal controls in place to mitigate those risks and an assessment of whether additional capital mitigates those risks. The Firm also considers a wind down scenario to assess the capital required to cease regulated activities.
We have not identified credit risk exposure classes or the minimum capital requirements for market risk as we believe that they are immaterial. Concerning Pillar 1, it is the Firm’s experience that the Fixed Overhead Requirement establishes its capital requirements and hence market and credit risks are considered not to be material. Furthermore, the market and credit risks component excludes such risks related to the management of alternative investment funds. Our capital requirements are currently £283,000 (the higher of the minimum capital calculated in accordance with either ‘Pillar 1’ or ‘own funds’) which is well within the level of regulatory capital held.
We consider this amount to be sufficient regulatory capital to support the business and have not identified any areas which give rise to a requirement to hold additional risk based capital.
The Firm’s ICAAP is formally reviewed by the Partners annually, but will be revised should there be any material changes to the Firm’s business or risk profile.
Given the nature and small size of our business, remuneration for all employees is set by the Partners of the Firm. The Firm formally reviews the performance of all employees and based thereon determines each employees overall level of remuneration and the split of that between base salary, bonus, etc. in compliance with the FCA Rules on remuneration.
Given that the Firm has only one business area, investment management, all remuneration disclosed is from this singular business area.
The Firm has defined “Code Staff” to be senior managers, risk takers, staff in control functions and any other staff whose remuneration takes them into the same bracket as senior managers and risk takers and whose activities might have a serious impact on the Firm’s risk profile. The aggregate level of remuneration earned by Code Staff is £1,150,000.
There is also a requirement for a remuneration statement to form part of the annual report of any Alternative Investment Fund ("AIF") to which the Firm acts as AIFM and which is either domiciled in the European Economic Area ("EEA") or marketed in the EEA.
The Firm is subject to the AIFMD Remuneration Code ("the Code"), has applied proportionality and, pursuant to this application and where relevant, has disapplied various provisions of the Code.
The Firm supports the principles enshrined in the Financial Reporting Council's Stewardship Code which sets out good practice for investor engagement. The FCA requires all authorised asset managers to publicly disclose either a statement of compliance with the Stewardship Code or where they do not commit, their alternative investment strategy.
The Financial Conduct Authority and the Financial Reporting Council have acknowledged that certain aspects of the Stewardship Code are not directly relevant to all managers. The Firm does not currently comply with the Code as the Firm’s investment strategy is to invest in small to mid-sized private companies, it does not invest in UK listed companies. Consequently, while the Firm supports the principles of the Code, the provisions of the Code are not relevant to the type of investments currently undertaken by the Firm.
The Firm’s Partners will continue to review the Code's applicability.