Effective Date: May 2019
Monterone 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 Risk Committee determine its business strategy and the level of risk acceptable to the Firm. In conjunction with the Chief Operating Officer, they have designed and implemented a risk management framework that recognizes 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 - The risk is the exposure to foreign exchange fluctuations due to investment management and performance fees being denominated in currencies other than sterling. The Firm operates currency bank accounts permitting it to receive/pay currency directly.
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 Chief Operating Officer.
The Firm is a Limited Liability Partnership and its capital arrangements are established in its Partnership deed. Its capital contains only members’ capital contributions.
The 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.
Pillar 1 capital is the higher of:
1. the base capital requirement of €50,000;
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 the market and credit risks are calculated 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:
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.
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 £146,000, which consists of the Fixed Overhead Requirement of £128k (which is higher than the ‘own funds’ requirement of £116k) plus £18,000 for the professional negligence capital requirement 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 LLP Management Committee 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 Management Committee 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 in our audited financial statements is from this business area.
The Firm has defined “Code Staff” to be the Firm’s current FCA approved persons. The aggregate level of remuneration earned by the staff is disclosed in our audited financial statements.
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.