Venn Partners LLP (“Venn” or “the Firm”) Pillar 3 Disclosure – 31 December 2018
The Firm is classified as a Collective Portfolio Management Investment Firm (“CPMI”) and as a BIPRU Firm as a consequence of it being permitted to undertake Additional Activities. Therefore, it is subject, as a BIPRU Firm to BIPRU 11, and, therefore, must make a Pillar 3 Disclosure at least annually.
In the United Kingdom, firms, such as Venn, which are Authorised and Regulated under the provisions of AIFMD are required to meet the provisions set out in the FCA’s Handbook IPRU(INV)11. The Firm, being a BIPRU CPMI, is also subject to FCA Handbooks GENPRU and BIPRU as a consequence of IPRU(INV)11.6.4. As a consequence, it is subject to the 3 Basel Prudential Pillars.
The Basel Pillars are, in summary:
- Pillar 1 – which sets out the Minimum Capital Resources that the Firm must meet at all times. In Venn’s case this is the sum of its Credit and Market Risk Capital Resources Requirement or its Fixed Overhead Requirement if higher;
- Pillar 2 – requires the Firm to assess whether its capital and liquidity resources and its risk management processes, strategies, systems and controls are adequate in order to meet the impact of risk the Firm might be subject to. The Firm should determine whether it should hold additional capital and liquid assets to cover risks not met adequately at, or not met at all, at Pillar 1; and
- Pillar 3 – requires disclosure of specified information about the Firm’s risk management controls and Pillar 1 capital position to encourage market discipline.
The AIFMD adds further capital and liquidity requirements based on the Alternative Investment Fund (“AIF”) it Manages in the form of the Assets Under Management and Professional Negligence Requirements and the minimum Liquid Asset Requirement which run in parallel with the Firm’s BIPRU Pillar 1 Capital Requirement.
The rules in BIPRU 11 set out the provisions for Pillar 3 disclosure. This document meets Venn’s Pillar 3 Disclosures.
The Pillar 3 disclosure document has been prepared by Venn in accordance with the requirements of BIPRU 11 and is verified by the Firm’s Partners.
Venn re-issues its Pillar 3 disclosures at least annually, it is lodged on the Firm’s website. The information contained in this disclosure is accurate as at 31 December 2018. This disclosure is not required to be audited by Venn’s external auditors and does not constitute or form part of the Firm’s financial statement.
Certain information relating to BIPRU 11.5 may be omitted on the basis that it has been deemed to be immaterial, commercially sensitive or would constitute a breach of confidentiality. The Firm regards information as material in this Disclosure if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. The Firm regards information as proprietary/confidential if sharing that information with the public would undermine its competitive position. Proprietary/confidential information may include information on products or systems which, if shared with competitors, would render the Firm’s investments therein less valuable. Further, the Firm must regard information as confidential if there are obligations to customers or other counterparty relationships binding the Firm to in order to meet its legal confidentiality obligations.
Background to the Firm
The Firm is a UK Limited Liability Partnership and is authorised and regulated by the FCA and as such is subject to minimum regulatory capital requirements. The Firm is categorised by the FCA as a Collective Portfolio Investment Firm (“CPMI”) BIPRU Firm for capital purposes. The Firm is not subject to Prudential Consolidation and is not, therefore, required to prepare consolidated reporting for prudential purposes.
In accordance with the GENPRU, the Firm has an established risk management function, to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business.
The Firm’s Governing Body (‘the Board’) is ultimately responsibility for the monitoring of any risk management issues at the Firm. Whilst maintaining overall responsibility for monitoring risk management, the Board has delegated the day-to-day risk management to the Firm’s Risk Committee and managing partners, a sub-committee established by the Board to support it in achieving its objectives and responsibilities by providing advice on all risks associated with the Firm’s business. The Risk Committee meets at least on a quarterly basis and reports to the Board on whether the Firm remains within its risk appetite.
Both the Risk Committee and the Firm’s Board discuss current projections for profitability, cash flow, regulatory capital management, business planning and risk management. The Firm’s Senior Management (the Partners), engage in the Firm’s risks though a framework of policies and procedures and robust internal control systems, having regard to the relevant laws, standards, principles and rules (including FCA principles and rules) with the aim to operate a defined and transparent risk management framework.
The Firm has engaged independent compliance consultants to monitor its compliance arrangements, based upon a risk-weighted methodology, to assess the effectiveness of the Firm’s compliance framework, in accordance with the Firm’s risk-based compliance monitoring programme. The monitoring programme is executed, and actions taken when necessary over the course of each calendar year.
The Risk Committee, the managing partners and the Board which is
ultimately responsible, have identified that credit, market, operational and
franchise risk of the Firm are the main areas of risk, to which the Firm is
exposed. The Risk Committee, the managing partners and Board regularly review
the risks, controls and other risk mitigation arrangements and assesses their
effectiveness. Appropriate action is taken where risks are identified which
fall outside of the Firm’s risk tolerance levels or where the need for remedial
action is required in respect of identified weaknesses in the Firm’s mitigating
controls. Further information on the identified risks is as follows.
Pillar 1 Own Funds Requirement
Credit Risk Requirement
The Firm has de minimis exposure to credit risk. The Firm’s Exposures include its cash held at HSBC Bank Plc. The credit risk to the Firm’s own invoices is also de minimis and all Clients are going concerns with minimal risk of default in the short or medium term. Given the nature of the Firm’s exposures, no specific policy for hedging and mitigating credit risk is in place. The Firm uses the simplified standardised approach detailed in BIPRU 3.5.5 of the FCA Handbook when calculating risk-weighted exposures on its cash in the bank as 8% of 20% of the value of cash at Bank and 8% on Exposure Values in respect of its other Exposures, e.g. Debtors and Fixed Assets.
Credit Risk Requirement summary
|Credit Risk Exposure||Percentage weighting (%)||Pillar 1 requirement (£)|
|Debtors (<1 year)||8.0||577,437|
|Cash at bank < 3 months||1.6||17,387|
Market Position Risk
The Firm, as a BIPRU Firm is limited to only the Foreign Exchange Market Position Risk, i.e. its exposure to foreign exchange fluctuations of its assets and liabilities, denominated in a currency other than the Firms Reporting Currency. Non-GBP bank accounts balances are maintained only to the extent that it is required to match USD or EUR denominated liabilities.
The Firm calculates its Foreign Currency Position Risk by reference BIPRU 7.5.1 of the FCA Handbook and applies an 8% risk factor to the absolute value of its net foreign exchange exposure on a currency by currency basis.
|Market risk exposure||Percentage weighting (%)||Pillar 1 requirement (£)|
|Foreign currency assets||8.0||95,311|
Other Risks considered at Pillar via the Firms Risk Management Process
The Firm places strong reliance on its robust operational procedures and controls that it has in place in order to mitigate this risk and seeks to ensure that all its staff are aware of their responsibilities in this respect.
The Firm has identified a number of key operational risks to manage. These relate to the loss of key staff, failure of its and its third-party providers’ systems, failure of a third-party provider; a serious regulatory breach, market abuse and administrative errors. To mitigate against these risks, the Firm has implemented appropriate policies and procedures, which includes the Firm having in place a sufficient level of professional indemnity insurance.
Reputational risk is the risk of failing to meet stakeholder expectations as a result of any event, behaviour, action or inaction, either by the Firm, it’s employees or those with whom we are associated. Any material lapse in standards of integrity, compliance, client service or operating efficiency may represent a potential reputational risk. Stakeholder expectations constantly evolve, and so reputational risk is dynamic and varies between geographical regions, groups and individuals.
The Firm is a Limited Liability Partnership and its capital arrangements are set out in its Partnership Agreement.
The main features of the Firm’s capital resources, funded entirely by Eligible LLP Member Capital, for regulatory purposes, are as follows:
|31 December 2018 (£000)|
|Common Equity Tier 1||2,623|
|Additional Tier 1l||–|
|Deductions from Tiers 1 and 2||(260)|
|Total Net Eligible Own Funds||2,363|
Fixed Overhead Requirement
The Fixed Overhead Requirement (“FOR”) is calculated, in accordance with FCA rules, based on the Firm’s previous year’s audited fixed expenditure(i.e. net of variable costs deducted, which includes discretionary bonuses paid to staff.) The Firm monitors its expenditure on a monthly basis and considers any material fluctuations in order to determine whether the FOR has not materially changed (20% either way) which would result an adjustment made mid-year. This is monitored by the Financial Controller and reported to the Chief Operating Officer (senior management) on a regular basis.
The Firm’s Pillar 1 Capital Resources Requirement has been determined by reference to the sum of the market & credit risk requirements as this exceeds the base capital requirement and the FOR.
The Firm is authorised and regulated by the FCA as a full scope UK AIFM and categorised as a BIPRU CPMI firm. As such, it is subject to the AIFM remuneration principles (“Principles”). These are contained in the AIFM Remuneration Code and transposed in SYSC 19B of the FCA Handbook. The Firm is also subject to SYSC19C, as a BIPRU Firm, but as Venn is subject to SYSC19B, per SYSC19C.1.1A being in compliance with SYSC19B is deemed that Venn is compliant with SYSC19C.
Enshrined in the European remuneration provisions is the principle of proportionality. The FCA has sought to apply proportionality in the first instance by instituting two tests. Firstly, a Firm that is significant in terms of its size must disclose quantitative information referred to in BIPRU 11.5.18R at the level of senior personnel.
The In line with FCA guidance, and following the Firm’s own assessment, the Firm has opted to disapply certain rules under the remuneration principles proportionality rule relating to deferral, payment in shares or other instruments and ratio between fixed and variable remuneration.
Under the FCA’s Remuneration Code, the Firm is required to identify staff who are subject to the Code (‘Code Staff’). Remuneration Code staff comprise categories of staff including senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the Firm’s risk profile. All of Venn’s Code Staff fall into the “senior management” category of Code Staff (rather than the “risk taker” category) for the purposes of the Remuneration Code.
|Remuneration code staff||Total remuneration (£)|
The Firm’s Remuneration Policy is designed to ensure that the Firm complies with the Principles and its compensation arrangements which:
- Is consistent with, and promotes sound and effective risk management;
- Does not encourage risk-taking which is inconsistent with the risk profiles of the instruments constituting the funds of the AIFs managed;
- Is in line with its business strategy, objectives, values and interests and that of the AIFs and the AIFs’ Investors and includes measures to avoid any conflict of interest.
We are required to disclose certain information on at least an annual basis regarding our Remuneration policy and practices for those staff whose professional activities have a material impact on the risk profile of the firm. Our disclosure is made in accordance with our size, internal organisation and the nature, scope and complexity of our activities. The Firm’s full Remuneration Policy is available at the request of investors.
Venn Partners LLP Commitment to the UK Stewardship Code
Under Rule 2.2.3R of the FCA’s Conduct of Business Sourcebook, Venn Partners LLP (the “Firm”) is required to include on this website a disclosure about the nature of its commitment to the UK Financial Reporting Council’s Stewardship Code (the “Code”) or, where it does not commit to the Code, its alternative investment strategy. The Code is a voluntary code and sets out a number of principles relating to engagement by investors with UK equity issuers. Investors that commit to the Code can either comply with it in full or choose not to comply with aspects of the Code, in which case they are required to explain their non compliance. We have detailed below the reasons why the firm has chosen not to commit to the Code.
The Firm is an investment manager in several European private debt markets excluding publicly traded equities. The Code is not therefore relevant to the Firm’s trading. While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code.
For further information on the Firm’s approach contact:
Luke Venables, Chief Operating Officer & Partner
Tel: 0044 207 073 9350
Shareholder Rights Directive (SRD II)
SRD II aims to promote effective stewardship and long-term investment decision making, in respect of shares traded on EEA regulated markets and comparable regulated markets outside the EEA. It came into effect on 10 June 2019.
The rules require asset managers, who invest in shares traded on a regulated market detailed above, to:
- Publish their shareholder engagement policy (or explain why they don’t have one) – COBS 2.2B.5R.
- Make annual public disclosures relating to the implementation of their shareholder engagement policy, from 10 June 2020 – COBS 2.2B.5R.
- Make disclosures to asset owners, including how their investment strategies contribute to the medium to long term performance of their assets – COBS 2.2B.9R.
Venn Partners LLP does not manage investments in shares which are traded on an EEA regulated market, or on a comparable regulated market outside the EEA, and so the SRD II rules do not apply to it. Therefore, we have not developed a shareholder engagement policy and nor are we required to make the disclosures outlined above.