Pillar 3 disclosure

BACKGROUND

The Capital Requirements Directive (‘CRD’) and Capital Requirements Regulation (‘CRR’) – usually referred to together as CRD IV - require investment firms to disclose information relating to their risk management approach and capital adequacy. The rules requiring disclosure are set out in the FCA handbook BiPRU 11.5.

The disclosure of this information is known as Pillar 3 and is designed to complement the two other pillars of the CRD, namely the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2).

SCOPE OF APPLICATION

The Pillar 3 disclosures relate to the single entity Zamo Capital LLP (“Zamo Capital” or “the Firm”) which is not part of a prudential consolidation group.

RISK MANAGEMENT OBJECTIVE AND POLICIES

Zamo Capital maintains a comprehensive risk management framework and defined procedures for identifying and escalating risk concerns throughout the organisation. These processes help to protect the interests of all stakeholders and meet our responsibilities as a UK regulated entity.

The ultimate responsibility for risk management lies with the Board. Senior management manage the firm’s capital base so that a prudent amount of excess capital is retained above the amounts calculated for the assessed risks. The capital retained will allow Zamo Capital to maintain and grow its business without further capital injection.

The framework is governed and structured through a variety of mechanisms that assist in ensuring employees are aware and understand their responsibilities:

  • Risk is a core consideration when setting strategy, formulating business plans and managing performance;

  • Implementation of a risk management framework process that facilitates the identification and assessment of risks across the business, related controls and other available risk mitigation available to us;

  • Establishment of an effective risk governance structure with oversight risk management responsibility allocated to the Board and responsibility for the management of risks within business lines ensuring that risk management is aligned with responsibility and accountability for service delivery;

  • Risk reporting provided to the Board on an annual basis covering the risk management framework across the Firm;

  • A clearly defined risk appetite reflecting the level of risk that Zamo Capital is willing to accept (or not accept) while pursuing its business objectives;

  • Development and implementation of risk policies and procedures.

KEY RISKS APPLICABLE TO THE FIRM

The Firm is required to assess the adequacy of its capital for ongoing purposes and required in the event of an orderly wind-down, taking into consideration the risks associated with its business model at least on an annual basis.

This process ensures the Board regularly oversees and assesses:

  • The major sources of risk to the company’s ability to meet its current and future liabilities according to its planned activities;

  • The results of internal stress testing of these risks; and

  • The amount and types of financial and capital resources and whether they are adequate to cover the nature and level of the risks to which the Firm is exposed.

This assessment is used within the business to support the decision-making process, identify potential risk exposures and implement appropriate mitigants. The Firm does not take  market or contractual positions to hedge balance sheet risk. The assessment is formally reviewed by the Board as part of the annual business planning cycle. Should business plans   or significant re-positioning dictate then interim reviews will be undertaken. Management information allows the Board to regularly monitor the business against the risk framework  and use it to make adjustments throughout the year and whenever else this may prove necessary.

 

The Firm has identified and assessed the following key risks:

Credit, Dilution and Liquidity Risks

The main source of credit risk for the Firm comes from non-payment of discretionary management fees. Cash resources are managed internally based on prudent cash flow forecasts and budgets.

The Firm has adopted the standardised approach to credit risk. For accounting purposes, the Firm considers “past due” to be defined when a debt is overdue payment to the Firm and “impaired” should the counterparty enter administration. Risk of non or late payment or the provision of offsetting credits, value-adjustments and provisions is low. The value of recoverable debts is monitored as part of the firm’s monthly accounting cycle.

The exposure amounts, which are all due and payable to the Firm, for each of the standardised credit risk exposure classes relevant to the Firm are:

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Geographic exposure

All the above exposures are to UK counterparties and clients.

Adjustments

There were no impaired exposures, past due exposures, value adjustments, provisions or charges for value adjustments during the period.

Market risk

The Firm does not hold investments subject to Market Risk on its balance sheet.

Operational risk

The Firm operates a robust and effective operational risk management process which includes mitigating potential risk to acceptable net risk levels.

Concentration risk

The Firm’s business development strategy is designed to avoid reliance on one or a small number of clients or Introducers.

Exposures to interest rate risk in the non-trading book

Interest rate risk is not material to the business. We do not consider that a movement in interest rates requires extra capital to be held.

Other risks

Other risks referenced in BiPRU 11.5 requiring disclosure are not relevant to the activities of the Firm.

Counterparty credit risks

The Firm is an investment manager. It does not provide credit to its customers or enter into transactions where there is a risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows.

Capital resources

The total capital resources available to the business as at 31 December 2021 were:

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Remuneration

All employees are remunerated with an annual fixed salary and variable payments determined at the discretion of the Firm. Variable payments will not comprise more than half of total compensation compared to fixed salary.

All remuneration decisions are approved by the Board of Partners.

The aggregate quantitative value of remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the firm is:

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All variable amounts are distributed as cash annually. There was no remuneration in the form of shares, share-linked instruments and other types of instruments. No remuneration was deferred and no new sign-on or severance payments were made during the financial year.