The following disclosures are made in accordance with the disclosure rules as set out in section 11 of the FCA’s Prudential sourcebook for Banks, Building Societies and Investment firms. The FCA has implemented a prudential framework for investment management firms through three “pillars”:
- Pillar 1 sets out the minimum capital requirements for the investment manager;
- Pillar 2 is an assessment of whether additional capital is needed over and above the amount determined under Pillar 1; and
- Pillar 3 requires the investment manager to publish its objectives and policies in relation to risk management, and information on its risk exposures and capital resources.
The rules provide that disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions. These disclosures apply solely to Vision Capital LLP (“the firm”) and do not apply to the funds managed by the firm.
The firm believes its risk management framework is appropriate for the size and complexity of the firm and that the firm’s capital is adequate to meet the risks assessed. Overall responsibility for identifying material risks to the firm and putting appropriate mitigating controls in place rests with the Chief Operating Officer.
The specific types of risks faced by the firm are operational risk, business risk, credit risk, and market risk; and capital planning takes these risks into account.
- Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. The firm seeks to minimize operational risk through an appropriate controls framework.
- Business risk arises from external sources such as changes to the economic environment or one-off economic shocks, and also from internal sources such as poor investment decisions, resulting in poor fund performance and damage to the firm’s reputation.
- The firm is not exposed to credit risk other than in respect of fees receivable and cash held on deposit (at a large UK institution). Management fees are drawn quarterly from each fund. The firm uses the simplified standardised approach when calculating risk weighted exposures, in accordance with the provisions of BIPRU 3.5.
- 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. The firm calculates its foreign exchange risk by reference to the provisions of BIPRU 7.5.
A guiding principle of the firm’s risk management is that long-term incentives make up a significant proportion of total financial reward and that any benefit derived from such long-term incentives is aligned with the interests of the investors in the funds advised by the firm. In practice, long-term incentives comprise a “carried interest” in the funds advised by the firm, which typically vests over a 48-month period. Carried interest holders will not participate in any benefit until investors have themselves received a return on the capital invested by them, thus aligning investor interests with the firm and promoting good risk management. Any benefits arising out of such long-term awards will be dependent on the results of the funds advised by the firm across a multi-year horizon.
Salary and annual discretionary compensation are determined following a performance management process in which the individual’s performance is judged against agreed competencies and behaviours, and an assessment of the individual’s contribution to the objectives of the firm. A committee comprising the CEO, the COO (who is also the Compliance Officer) and the HR Director is responsible for the determination of remuneration. The participation of the COO and HR Director in the Committee ensures remuneration is considered in the context of the firm’s risk management and that due consideration is given to the firm’s capital requirements in the determination of annual awards. Vision Capital LLP reported aggregated partner drawings charged as remuneration of £1.6 million in its audited 31 December 2014 accounts. Due to the size of the firm, it is not possible to distinguish separate business units for remuneration purposes.
As at 31 December 2014, the firm’s regulatory capital resources of £2.2 million comprised solely core Tier 1 Capital. At 31 December 2014, the firm had a surplus of £2.2million.
As a limited licence firm, Vision Capital’s Pillar 1 capital requirement is calculated in accordance with the General Prudential Sourcebook (“GENPRU”).
UK Stewardship Code
Under COBS 2.2.3 of the FCA Handbook, the firm is required to make a public disclosure in relation to the nature of its commitment to the above Code, which was published by the Financial Reporting Council (‘FRC’) in July 2010. The Code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. It sets out good practice on engagement with investee companies and is to be applied by firms on a “comply or explain” basis. The Code is directed in the first instance to institutional investors with equity holdings in UK listed companies. The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may judge some of the principles and guidance to be disproportionate. It is of course legitimate for some asset managers not to engage with companies, depending on their investment strategy, and in such cases firms are required to explain why it is not appropriate to comply with a particular principle. The firm does not currently comply with the Code because the funds advised by the firm target investments in unquoted companies.