Risk Management
The firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is monitored by the Finance Manager and the Head of Operations, with the Management Committee taking overall responsibility for this process and the fundamental risk appetite of the firm.
A formal update on operational matters is provided to the Management Committee on a monthly basis. Monthly management accounts demonstrate continued adequacy of the firm’s regulatory capital is reviewed on a regular basis.
Credit risk
The main credit risk to which the firm is exposed is in respect of its debtors. However, there has not been a history of bad debts and as such the counterparty risk it is required to hold in respect of management fees due is considered to be more than adequate to cover such eventuality.
The credit control process is operated by the firm’s Finance Manager and any significant outstanding balances would be reported to senior management via the management accounts.
The Finance Manager reviews bank reconciliations on a monthly basis in order to ensure the firm’s records are in agreement with those of the bank. Given the nature of the firm’s exposures, no specific policy for hedging and mitigating credit risk are in place.
The firm has a limited number of credit exposures relating to its investment management clients to which a risk weighted exposure of 8% of the total balance due is applied under the simplified standardised approach detailed in BIPRU 3.5.5 of the FCA Handbook. All bank accounts are held with UK credit institutions and as such are subject to a risk weighted exposure of 1.6% in accordance with BIPRU 3.4 of the FCA Handbook.
Market risk
The firm holds no trading book positions, therefore it is not exposed to market risk. However, the firm does maintain a US dollar bank account to facilitate US dollar revenue due, thereby exposing the firm to limited foreign exchange rate risk. A risk weighted exposure of 8% is applied to all foreign currency cash balances on accordance with BIPRU 7.5 of the FCA Handbook.
Business risk
The firm conducts a formal assessment of the business risk to which it is exposed on an annual basis, though given the size and nature of the firm no separate risk management function is considered necessary in respect of the firm’s own balance sheet. Matters arising from the review are considered and mitigating or remedial action is taken where appropriate.
The firm’s revenue is reliant on the performance of the existing funds under management and its ability to launch new funds/obtain new mandates. As such, the risk posed to the firm relates to underperformance resulting in a decline in revenue, adverse market conditions hindering the launch of new funds and ultimately the risk of redemptions from the funds managed by the firm. This risk is mitigated by significant levels of capital held by the firm which will continue to cover all the expenses of the business going forward (given no significant change to revenues or expenses).
Operational risk
The firm conducts a formal assessment of the operational risk to which it is exposed on an annual basis. Whilst no separate risk management function is considered necessary in respect of the operational risks which the firm faces given its size and the nature of the risks faced, risk management remains a key function of the firm’s business in respect of the portfolios it manages. Matters arising from the review are considered and mitigating or remedial action is taken where appropriate.
The Firm has professional indemnity insurance in place to mitigate against the risk of costs being incurred due to trade errors occurring. The insurance cover up to £1.5m is provided by PartnerRe Ireland Insurance Ltd and Lloyds Consortium 9862 (both A+ rated by S&P). The firm is then covered by the Sanlam Group policy up to SAR 1,000,000,000 (approximately £50m).
The firm is reliant on its ability to attract and retain key investment management personnel. Appropriate polices are in place to mitigate this, including thorough vetting procedures and an appropriate remuneration structure.
The firm has alternative arrangements in place should a disaster recovery event occur. These arrangements are tested on a regular basis in order to ensure that they would be effective should they be required to be invoked.