Castlebay Investment Partners LLP Pillar 3 Disclosure
This is the Pillar 3 disclosure made in accordance with the UK Financial Conduct Authority (FCA) Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).
The European Capital Requirements Directive (CRD) created a regulatory capital framework consisting of three ‘pillars’, namely:
The rules in BIPRU 11 provide that the firm may omit one or more of the required disclosures if it believes that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information would be likely to change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions. Where the firm considers a disclosure to be immaterial, this will be stated in the relevant section.
The firm is also permitted to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary information is that which, if it were shared, would undermine the firm’s competitive position. Information is considered to be confidential where there are obligations binding the firm to confidentiality with its clients and counterparties.
Where the firm has omitted information for any of the above reasons, a statement explaining this will be provided in the relevant section.
Unless stated as otherwise, all figures contained in this disclosure are based on the firm’s audited annual reports for the year ending 30 April 2020
These Pillar 3 Disclosures will be reviewed on an annual basis as a minimum. The disclosures will be published as soon as is practical following the finalisation of the firm’s Internal Capital Adequacy Assessment Process (ICAAP) and the publication of its annual reports.
The information contained in this disclosure has not been audited by our firm’s external auditors and does not constitute any form of financial statement.
Our firm’s Pillar 3 Disclosure reports are published on our website.
Scope and application of Directive requirements
The disclosures in this document are made in respect of Castlebay Investment Partners LLP which provides financial advice and discretionary investment management services.
The firm is a BIPRU firm.
Our risk management policy reflects the FCA requirement that we must manage a number of different categories of risk. These include: liquidity, credit, market, interest rate, business and operational risks.
1. Liquidity risk
The firm manages all cash and borrowing requirements to maximise potential interest income whilst ensuring the firm has sufficient liquid resources to meet the continued operating needs of the business. This is supported by a robust budgeting and forecasting process which has the full involvement of the senior management team.
2. Credit risk
The firm’s revenues include annual management charges received from clients based on a percentage of client assets under management. These charges are made directly to the clients’ portfolios and therefore the credit risk relating to this income is minimal.
3. Interest rate risk
The firm has no interest rate risk with a small number of outstanding Loan Notes payable at a fixed rate of interest at 5% per annum.
4. Business risk
The firm’s Pillar 2 business risk assessment principally takes the form of a fall in assets under management following a market downturn that results in lower management fees. Systems failures are also considered, although deemed very low risk given our business model. To mitigate our business risk, we regularly analyse various different economic scenarios to model the impact of economic downturns on our financial position.
5. Operational risk
Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.
Major sources of operation risk include: outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.
The firm operates a robust risk management process which is regularly reviewed and updated with details being provided to all staff. The firm’s Compliance Oversight is responsible for the periodic reviews and recommending any changes to the Board. All senior management take responsibility for internal controls and the management of business risk, as part of their accountability to the board.
Individuals are responsible for identifying the risks surrounding their work, implementing controls over those risks and reporting areas of concern to their line manager.
The Compliance Oversight will provide the board with a quarterly / half-yearly summary report on all significant risk issues.
6. Other risks
The firm operates a simple business model. Accordingly, many of the specific risks identified by the FCA do not apply.
Pillar 1 requirement
In accordance with GENPRU 2.1.45R (calculation of variable capital requirement for a BIPRU firm), our capital requirement has been determined as being our fixed overhead requirement and not the sum of our credit risk capital requirement and our market risk capital requirement.
The Pillar 1 capital requirement for Castlebay Investment Partners LLP was €50,000 as at 30 April 2020.
Our overall approach to assessing the adequacy of our internal capital is set out in our ICAAP. The ICAAP process involves separate consideration of risks to our capital combined with stress testing using scenario analysis. The level of capital required to cover risks is a function of impact and probability. We assess impact by modelling the changes in our income and expenses caused by various potential risks over a 1-year time horizon. Probability is assessed subjectively.
In addition, we have reviewed the outputs of our risk reviews to quantify any risks identified. This has identified a number of key business risks which we have classified against the risk categories contained in GENPRU 1.2.30R and reviewed the guidance in BIPRU 2.2.61-65.
Our Pillar 2 capital requirement, which is our own assessment of the minimum amount of capital that we believe is adequate against the risks identified, has been assessed as greater than our Pillar 1 requirement. There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.
The main features of Castlebay Investment Partners LLP’s capital resources for regulatory purposes, as at 30 April 2020 are as follows:
Tier 1 capital (called up share capital, share premium account, profit and loss account, externally verified interim net profits)
Total of tier 2 and tier 3 capital (broadly long and short term subordinated loans)
Deductions from tier 1 and tier 2 capital
Total capital resources, net of deductions
The firm holds regulatory capital in accordance with the Capital Requirements Directive.
Remuneration Code Disclosure
The firm is subject to the BIPRU Remuneration Code. This section provides further information on our remuneration policy.
BIPRU Remuneration Code Staff
We have identified, and maintain a record of, 'BIPRU Remuneration Code Staff' – i.e. staff to whom the BIPRU Remuneration Code applies. There are four members of staff who are deemed to be code staff. All of our Code Staff fall into the "senior management" category of Code Staff (rather than the "risk taker" category) for the purposes of the BIPRU Remuneration Code.
Castlebay does not have a Remuneration Committee. The Partners are responsible for our remuneration policy including:
The basis of the partnership’s remuneration at Castlebay is in the form of drawings and profit share. There is no incentive or method by which the partners can enhance the partnership profitability to inflate their remuneration. Variable remuneration is considerably reduced where subdued or negative financial performance of the firm occurs.
The firm only has one business area - investment management. There are 4 Partners but no “risk takers”. Partner drawings/remuneration is formally agreed at Board meetings based on the profitability of the Partnership in any single financial year.
Breakdown of remuneration of staff in respect of whom disclosure is required by business area (BIPRU 11.5.18(6) to the end of April 2020
£272k total value of remuneration paid to the partners of the firm.
Castlebay takes its management and stewardship responsibilities seriously.
We are not currently signatories of the Stewardship code, however, we believe it is important to remain up to date on issues impacting our investee companies and to engage with them where appropriate. We assess any issue in terms of its impact to the long term value of an underlying company and thus the value of our clients’ holdings.
We believe that good long-term performance of companies is directly related to their approach to good governance, ethical and environmental responsibility and consideration of social impact. As such, when specific SRI issues are identified Castlebay will consider these in relation to other investment factors.
Our approach to stewardship and SRI is encapsulated in the following principles which are embedded in our investment philosophy:
We are committed to delivering the highest level of client service and ensuring that our clients and fund investors are treated fairly in accordance with the Financial Conduct Authority’s (FCA) Treating Customers Fairly (TCF) guidelines.
We work hard to ensure that:
Fundamental to this commitment are our robust compliance and risk monitoring procedures carried out by our well qualified operation team who work closely with the industry specialists we have appointed.
Castlebay Investment Partners LLP is authorised and regulated by the Financial Conduct Authority (624445)
Registered Office: Crosstrees House, 14 Sandyford Place, Glasgow G3 7NB Tel: 0141 212 7930
Castlebay Investment Partners LLP is a Scottish Registered Limited Liability Partnership SO304149