30 June 2017

 

1.      Background

Capricorn Private Investments is a division and a registered trading name of Capricorn Capital Partners UK Limited.  Capricorn Capital Partners UK Limited (the “Firm”) was incorporated with limited liability in England and Wales on 29 May 2015 and is authorised and regulated by the Financial Conduct Authority (the “FCA”) with Firm reference number 748414. The Firm acts as an investment advisor and investment manager.

The Firm is categorised as a Limited License BIPRU Firm by the FCA for capital purposes. It reports on a stand-alone basis.  The capital adequacy is based on three pillars:

Pillar 1 –     This specifies the minimum capital requirements which the Firm is required to hold

Pillar 2 –     This supervisory review process requires an assessment to be made of whether additional capital should be held against risks not covered by Pillar 1.

Pillar 3 –     This introduces public disclosure of qualitative and quantitative information and is designed to promote market discipline by providing market participants with key information on a firm’s risk exposures and risk management processes.

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.

2.      Risk Management Objectives and Policies

The Directors of the Firm determine and outline the Firm’s business strategy and the risk appetite.  As part of this process, they consider the Firm’s risk appetite to ensure that the Firm’s risk management framework is appropriately designed and implemented.  The Directors also determine how those risks may be mitigated and assess on an ongoing basis the controls and procedures necessary to manage those risks. The Directors meet on a regular basis and discuss projections for profitability, liquidity, regulatory capital, business planning and risk management.

As an investment advisor and manager, the Firm considers the following as key risks to its business:

Business risk         The key risks are a fall in client 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.

To mitigate business risks, the Finance team periodically produces a forecastmodels various different economic scenarios to assess the potential impact that these would have on the Firm’s financial position. The exposure to these business risks is to some extent mitigated by having (i) distinct and diversified strategies managed by 5 separate investment teams, (ii) appropriate staff retention policies and (iii) broad investor base with no reliance on key investors.

Operational risk  This risk covers a range of operational exposures from risk of trading errors to risk of breach of a client’s investment objectives. Legal, regulatory and reputational risks are also included within the category of operational risk.

Each risk is assigned a level of impact and probability of either high, medium high, medium low or low. The Firm aims to ensure that there are sufficient mitigating factors and controls to ensure that the net probability of each risk is low.  It is the responsibility of the Compliance team to monitor the effectiveness of the mitigating controls.

Credit risk              This risk relates to the exposure to the clients for non-payment of advisory and management fees and counterparty exposure relating to the Firm’s bank balances and any other debtors.

The Firm follows the standardised approach for the assessment of both market risk and credit risk, using a simplified approach to calculate risk weights for credit risk exposures.

Market risk           This risk is limited to exposure to foreign currency balances.  These may arise on advisory and management fees being denominated in currencies other than sterling. Foreign currency balances are monitored and converted as appropriate.

3.      Capital Resources

As a limited license firm the minimum capital resources requirement of the Firm is calculated as the greater of:

  • the base capital requirement of EUR50,000;
  • the sum of its market and credit risk requirements; and
  • its Fixed Overhead Requirement (“FOR”).

In practice, the fixed overhead requirement is the greatest and therefore establishes the Firm’s minimum capital requirement under Pillar 1.  Thus disclosures relating to credit and market risk are considered to be immaterial.

As at 30 June 2017 the Firm’s regulatory capital was:

Capital item £000
Tier 1 capital: Share Capital and Audited Reserves 473
Own Funds 473

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 Internal Capital Adequacy Assessment Process (‘ICAAP’).

The Firm assesses the adequacy of its capital through its ICAAP.  As part of this process, the Firm assesses all known risks, including operational and business risks, the internal controls in place to mitigate those risks, and performs stress and scenario tests to determine whether the level of capital that the Firm holds is adequate to support its current and future activities.  Following this analysis, it is the Firm’s opinion that no additional capital is currently required.

The Firm’s ICAAP is formally reviewed by the Directors approximately every 12 months, but will be revised should there be any material changes to the Firm’s business or risk profile.

4.      Remuneration

Given the nature and small size of our business, remuneration for all employees is set by the Board of the Firm. The Firm formally reviews the performance of all employees, including an assessment of both financial and non-financial performance metrics, 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 and the Remuneration Code.

The Firm acknowledges the following general principles:

  • Remuneration policies and practices should be consistent with, and promote, sound and effective risk management.
  • Remuneration policy should be in line with the business strategy, objectives, values and interests of the Firm, and include measures to avoid conflicts of interest.
  • The Firm’s total variable remuneration should not limit the Firm’s ability to strengthen its capital base.
  • Where the Firm’s financial performance is subdued or negative, total variable remuneration should generally be considerably contracted.

The Firm has defined “Code Staff” to be the senior management of the Firm. The aggregate level of remuneration earned by staff is disclosed in our audited financial statements.

The Firm has determined that they are a “Tier 3” firm and has applied proportionality and, where relevant, has disapplied various provisions of the FCA Remuneration Code.