06 December 2013
Lansdowne Partners Limited (the “Company”) is regulated in the UK by the Financial Conduct Authority (the “FCA”) and is classified as a limited licence investment firm. It acts as the General Partner to Lansdowne Partners Limited Partnership.
The Capital Requirements Directive introduced consistent capital adequacy standards and an associated supervisory framework in the EU based on the Basel II rules. The Directive, introduced into the UK by the Financial Services Authority (precursor to the FCA), consists of three ‘pillars’:
- Pillar 1
This specifies the minimum capital requirements.
- 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.
The disclosures below are the required Pillar 3 disclosures and apply solely to the Company. The disclosures do not apply to Lansdowne Partners Limited Partnership and Lansdowne Partners Austria GmbH or the funds they manage, which are exposed to different risks.
II. Risk management objectives and policies
The Company maintains a clear delineation between Investment Management teams and the Business Management & Risk Oversight team. The directors and members of the Company’s management committee determine and outline the Company’s business strategy. As part of this process, they consider the Company’s risk appetite to ensure that the Company’s risk management framework is appropriately designed and implemented. Both the management committee and key members of the Company’s Operations, Business Management & Risk Oversight and Finance & Compliance teams meet on a regular basis to discuss and identify any potential risks that the Company faces.
Operational risk is primarily the responsibility of the Operations and Business Management & Risk Oversight teams. The Company maintains an Operational Risk Policy & Framework including a detailed risk map that identifies the risks faced by the Company and the mitigating factors and controls that address these risks. Each risk is assigned a level of impact and probability of either high, medium high, medium low or low. The Company aims to ensure that there are sufficient mitigating factors and controls to ensure that the net probability of each risk is low. The risks map is reviewed and approved by the Company's Board of Directors on a quarterly basis. It is the responsibility of the Finance & Compliance team to monitor the effectiveness of the mitigating controls. The Company has also engaged an independent accounting firm to undertake annual testing of the internal control environment.
The Company has identified the key business risks as principally taking the form of a fall in the assets under management of Lansdowne Partners Limited Partnership or the loss of key staff which may reduce the fee income earned by Lansdowne Partners Limited Partnership and hinder its ability to reimburse the Company’s expenses. To mitigate business risks, the Finance & Compliance team periodically models various different economic scenarios to assess the potential impact that these would have on the Company’s financial position. The exposure to these business risks is to some extent mitigated by having (i) distinct and diversified strategies managed by 3 separate investment teams, (ii) appropriate staff retention policies and (iii) broad investor base with no reliance on key investors.
Market risk is limited to exposure to foreign currency balances and the potential impact of adverse market conditions on the ability of Lansdowne Partners Limited Partnership to reimburse the Company’s expenses.
Credit risk is limited to amounts due from Lansdowne Partners Limited Partnership (reimbursement of the Company’s expenses) and other sundry debtors. Should Lansdowne Partners Limited Partnership not be able to reimburse the Company’s expenses, the Company’s parent undertaking, Lansdowne Partners International Limited, will provide additional capital as the need arises.
III. Capital resources
The Company is not required to calculate an operational risk charge for its Pillar 1 requirement under applicable exemptions. As a limited licence firm, the Company’s minimum capital requirement under Pillar 1 is therefore the greatest of:
- the base capital requirement of €50,000;
- the sum of its market and credit risk requirements; and
- its fixed overhead requirement.
Market and credit risks are not material for the Company. Therefore, in practice, the fixed overhead requirement is the greatest and therefore establishes the Company’s minimum capital requirement under Pillar 1of £4,608,000.
The Company assesses the adequacy of its capital through its Internal Capital Adequacy Assessment Process. As part of this process, the Company assesses all known risks, including operational and business risks, and performs stress and scenario tests to determine whether the level of capital that the Company holds is adequate to support its current and future activities. Following this analysis, it is the Company’s opinion that no additional capital is currently required.
The Company’s regulatory capital consists of the following:
|Tier 1 capital less innovative tier 1 capital||7,565,000|
|Total of tier 2, innovative tier 1 and tier 3 capital||0|
|Deductions from tier 1 and tier 2 capital||0|
|Total capital resources, net of deductions||7,565,000|
The Company does not hold any equities, other than those considered immaterial, does not have a trading book and does not undertake any form of securitisation.
The Company’s capital resources requirement consists of its fixed overhead requirement and not the total of the credit risk and market risk requirements. Therefore disclosures relating to credit and market risk are considered to be immaterial.
The Company’s Board of Directors is responsible for setting and implementing the Company’s remuneration policy. During this process and when setting individual remuneration awards, the Board of Directors seeks input from key business units (including business management, risk oversight and compliance). In addition, the Company seeks advice from external consultants where appropriate.
The Company acknowledges the following general principles:
- Remuneration policies, procedures and practices should be consistent with and promote sound and effective risk management and not encourage risk-taking that exceeds the level of tolerated risk of the Company.
- Remuneration policy should be in line with the business strategy, objectives, values and long-term interests of the Company.
- The Company’s total remuneration should not limit the Company’s ability to strengthen its capital base.
- The structure of an employee’s remuneration should be consistent with and promote effective risk management.
- Where the Company’s financial performance is subdued or negative, total variable remuneration should generally be considerably contracted, taking into account both current remuneration and reductions in payouts of amounts previously earned.
The Company’s performance appraisal process includes an assessment of both financial and non-financial performance metrics. Non-financial factors considered include the employee’s adherence to Lansdowne policies and procedures, ethics culture and risk management framework. Regard is also given to assess performance in a multi-year timeframe, where this is relevant.
Discretionary bonuses will be as determined by the Company. The factors used in setting such bonuses are as follows:
a) individual performance;
b) performance of the individual business unit; and
c) overall results of the business.
Based on the Company’s profile, the Directors consider that it has one business area, investment management. For the year ended 31 December 2012, total remuneration paid to employees amounted to £12.14m (of which £2.59m was paid to employees who are considered to have a material impact on the risk profile of the Company).