Pillar 3 Disclosure as of December 31, 2018

The Capital Requirements Directive (“CRD”) and the Alternative Investment Fund Managers Directive (“AIFMD”) (“together, the Directives”) created a revised regulatory capital framework across Europe covering the amount and nature of capital financial services firms must maintain, including provisions for compensation. In the United Kingdom, rules and guidance are provided by the Financial Conduct Authority (“FCA”) in the General Prudential Sourcebook (“GENPRU”) for Banks, Building Societies and Investments Firms (“BIPRU”) and the Investment Funds Sourcebook (“FUND”).

The FCA framework consists of three "Pillars":

  • Pillar 1 sets out the minimum capital requirements for firms to meet their credit, market and operational risk;

  • Pillar 2 requires firms to assess whether their Pillar 1 capital is adequate to meet their risks and is subject to annual review by the FCA; and

  • Pillar 3 requires public disclosure of qualitative and quantitative information about the Firm’s underlying risk management controls, capital position and remuneration arrangements.

The AIFMD adds further capital requirements which relate to the assets under management and professional liability risks of the Alternative Investment Funds (“AIFs”) operated by a manager.

Rule 11 of BIPRU sets out the provisions for Pillar 3 disclosure. This document is designed to meet our Firm’s Pillar 3 obligations.

The rules provide that firms may omit one or more of the required disclosures if such omission is regarded as immaterial. Information is considered material if its omission or misstatement could change or influence the decision of a user relying on the information. In addition, firms may also omit one or more of the required disclosures where such information is regarded as proprietary or confidential.

Future disclosures will be issued on an annual basis, at a minimum, and will be made available on Albert Bridge’s website.

Firm Overview

Albert Bridge Capital LLP (“the Firm”) is incorporated in the UK and it is authorised and regulated by the FCA. The Firm has permission to provide discretionary investment management and investment advisory services on behalf of professional clients and eligible counterparties. The Firm is a full scope alternative investment fund manager (“AIFM”) and it is classed as a Collective Portfolio Management Investment firm (“CPMI”) that is an external AIFM by the FCA for capital purposes.

The Firm is governed by its senior management, tasked with designing a risk management framework that allows them to identify the risks faced by the business, measure their potential impact and establish policies and procedure to ensure such risks are actively managed. Business, operational, market and credit risks have been identified as the main areas of risk to which the Firm is exposed. Where, in the course of business, any material risk is identified, the financial impact of such risk is measured as part of business planning and capital management and determination is made whether the amount of regulatory capital is adequate.

Capital Resources and Requirements

Capital Resources

Pillar 1

The Firm is a Limited Liability Partnership and its capital arrangements are established in its Partnership Deed. Its capital comprises of £303,000 Tier 1 capital and £1,300,000 supplementary capital with the latter absorbing the expenses. As at 31 December 2018, the Firm's Pillar 1 capital requirement was £ 248,018. The Firms capital requirements and main features of its resources are summarised below.

As a BIPRU limited license firm, the Firm’s capital requirements are the greater of:

  • Its base capital requirement of €50,000;

  • The sum of its market and credit risk requirements; or

  • Its fixed overhead requirement (FOR).

In addition, as a CPMI, the Firm is also required to maintain at all times ‘own funds’ which equal or exceed the higher of:

  • Funds under management requirement which is the Base Capital Requirement of €125k + 0.021% of AIF AUM in excess of €250m (but subject to a maximum of €10m); or

  • The sum of its market and credit risk requirements; or

  • Variable Capital Requirement, which is the Fixed Overhead Requirement Plus whichever is applicable of:

a) The professional negligence capital requirement; or

b) The PII capital requirement.

Satisfaction of Capital Requirements

Pillar 2

Pillar 2 requires the Firm to take a view on whether the Firm needs to hold additional capital against firm-specific risks not adequately covered by Pillar 1.

The Firm has a fairly simpler operational structure and it has concluded that the largest risk in capital terms is that of performing an orderly wind down of the business and the calculated costs for such a scenario is less than the Firm’s Pillar 1 capital requirement and the Firm has therefore concluded that no additional capital injections are necessary and the Firm expects to continue to be profitable.

Risk Management

It is the Firm’s view that its capital requirements are driven by its fixed overhead requirements. However as mentioned above, the firm has also identified and assessed the impact of business, operational, market and credit risks. The firm has also considered liquidity risk and deemed its impact on the firm immaterial.

Business Risk

The most significant business risk faced by the Firm is that of a substantial and sustained reduction in Funds under Management, caused by adverse market conditions or investor redemptions, resulting in a loss of management fee income. The firm has assessed those risks and it is able to mitigate using various means including by solidly capitalizing the business.

Operational Risk

This is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.

Albert Bridge seeks to mitigate all operational risks to acceptable levels, in accordance with its risk appetite, by maintaining a strong control environment, ensuring that its employees have appropriate skills and training and establishing an efficient and effective management structure.

Market Risk

Since the Firm holds no trading book positions on its own account, its market risk is limited to the impact of foreign exchange fluctuations on its receivables in foreign currency (such as the management and performance fees which are receivable in USD) and on the value of any foreign currency held in the bank. The firm maintains both GBP and USD bank accounts and is able to pay out of them directly, minimizing the cost of foreign currency trading.

Credit Risk

The main credit risk to which the Firm is exposed is in respect to the failure of its debtors to meet their contractual obligations. The Firm believes its credit risk exposure is limited since the Firm’s revenue is primarily related to management and or performance fees received from funds. Other credit exposures include bank deposits and office rental deposits (held with reputable institutions). As such, due to the low risk of non-payment from its counterparties, management is of the opinion that no provision is necessary.

The Firm has adopted the standardised approach to credit risk, and therefore follows the provision within BIPRU 3 standardised credit risk of the FCA handbook. The Firm applies a credit risk capital component of 8% to its non-trading book risk weighted exposure. The Firm is obligated to use a risk weight of 100% to all non-trading book credit exposures, except cash and cash equivalents which currently attract a risk weighting of 20%. The Firm has calculated its credit risk capital component (8% of risk weighted exposure) to be £140,689. Having performed its assessment and calculations, the Firm has concluded that no additional capital in excess of its Pillar 1 capital requirement is necessary.

Remuneration Code

The Firm has adopted a remuneration policy and procedures that comply with the requirements of chapter 19B of the FCA's Senior Management Arrangements, Systems and Controls Sourcebook (“SYSC”) and in accordance with ESMA’s Guidelines on sound remuneration policies under AIFMD as well as the FCA’s published guidance.

The Company only has one "business area", namely its investment management business and as a CMPI, Albert Bridge falls within proportionality level 3. Albert Bridge currently sets the variable remuneration of its staff in a manner which takes into account individual employee as well as firm performance. As a UK AIFM the Firm has assessed the proportionality elements and it has concluded, on the basis of its size and the nature, scale and complexity of its legal structure and business that it does not need to appoint a remuneration committee. Instead, the senior management sets, and oversees compliance with, the Firm's remuneration policy including reviewing the terms of the policy at least annually.