Pillar 3 Disclosure

Introduction

North Asset Management LLP is authorised and regulated by the Financial Conduct Authority. As part of the Capital Requirement Directive ('CRD') North Asset Management LLP, is required to carry out an Internal Capital Adequacy Assessment Process ('ICAAP').


The capital requirements for firms such as North Asset Management  LLP has been enacted in the United Kingdom through the Financial Conduct Authority ('FCA') Handbook and particularly within the FCA Prudential Sourcebook for Banks, Building Societies and Investment Firms ('BIPRU') which are known as Pillar 3. To comply with the new regulatory capital framework the rules built on 3 pillars have to be followed:


Pillar 1 is a variable capital requirement based on the sum of operational, market and credit risk requirements. A firm must maintain at all times capital resources equal to or in excess of the amount specified.

Pillar 2 requires each firms and supervisors to review whether additional capital should be held against risks not covered in Pillar 1, to instigate additional controls to mitigate such risks or a combination of these two approaches.


Pillar 3 requires firms to publish certain details of capital and risk management and to review and update this information at least annually.


Under the rules a firm may omit one or more disclosures where the information provided by such disclosure is not regarded as material.

The disclosures below are the required Pillar 3 disclosures and apply solely to the Firm North Asset Management LLP. The disclosures do not apply to the funds managed by the Firm, which are exposed to different risks.

The Company

North Asset Management LLP was incorporated in 2002 and is authorised and regulated by the Financial Conduct Authority to conduct investment business, without permission to hold and control client money. The firm is categorised as a Limited Licence Firm by the FCA for capital purposes and acts as an Alternative Investment Fund Manager (AIFM) for the Alternative Investment Funds (AIFs) that it manages. North Asset Management principle activity is the provision of investment management and advisory service focusing on the global fixed income and currency markets. North Asset Management LLP also advises on investments, arranging deals on investment, dealing in investment as an agent, making arrangements with a view to transactions in investment and managing investment and therefore Pillar 3 disclosure relate to this entity.

Our business model seeks to maximise absolute total returns by investing in strategies which have strong fundamental basis and are long term in nature.

Risk Management objectives and policies

North Asset Management LLP maintains an uncomplicated company structure, it also does not hold client money or assets on these grounds management have categorised the company as simple and therefore the ICAAP has been prepared in relation to the complexity of this category.

The members of North Asset Management LLP place a high priority on a strong risk management culture. The members recognise that risk is inherent to their business and the market in which they specialise.

North Asset Management faces a number of business risks which are actively managed. The principle risk areas which we seek to manage are investment risk, credit risk, market risk, liquidity risk and operational risk.

Investment risk

Poor investment performance in the funds that we manage could result in a reduction in the management and performance fees that we earn. This is a fundamental risk to our business which we actively manage by:

  • Recruitment and retention of highly talented portfolio managers who embrace our investment approach of generating attractive risk adjusted returns with an absolute return mentality.
  • Establishment of a robust investment process.
  • Independent risk analysis provided to the portfolio managers.

Credit risk

Our funds only enter into over the counter transactions with high rated institutions. We do not hold client money and as a result have no obligation to pay our clients.  Therefore the likelihood of a default in receiving our management and performance fee is very low. Even though we do not consider credit risk affecting us, we still mitigate this by:

  • Holding large amount of cash in bank accounts with highly rated banks
  • The funds managed by the company on behalf of the fund company get approval from the fund company directors before any decisions are made, also all trades are executed with highly rated counterparties.
  • Assess credit risk with counterparties by taking into account current exposures and potential future exposures based on potential market movements.

Market risk

Our management fee and performance fee is received in US dollars and in Euros. As we report in GB sterling there is a danger of suffering from exchange rate losses. This risk is managed by:

  • Holding money received from performance fees and management fees in USD or Euro bank accounts. Money is transferred into GBP when the rates are favourable.

Liquidity risk

Not being able to meet our financial obligations as they fall due. Even though we think this is highly unlikely we manage the risk by:

  • Holding money in our money market bank accounts that earn us interest.
  • Hold money in our deposit accounts that we have access to as required.
  • Monitor our bank balance on a regular basis

Operational risk

Management and performance fees drop significantly that affects our ability to operate. We believe the key ingredients to this are:

  • We have adequate working capital to cover expenses, the savings are held in highly rated bank deposits
  • The recruitment, retention and motivation of high quality professionals.
  • Continual reviewing and upgrading of internal controls and procedures.

Capital Resources

At 30th November 2016, North Asset Management LLP held £3.2m of Tier 1 capital in the form of members' capital contributions.

North Asset Management is not required to and does not hold Tier 2 or 3 capital. There are no other items or deductions.

The company's Pillar 1 capital resource requirements is the higher of the base capital requirements and the variable capital resource requirements, as detailed in the table below.

Requirement                                        Details

Base Capital requirement                    €125,000 (conversion sterling amount £102,000)

The higher of:

Variable capital resource                     (1) The sum of the credit Risk Capital Requirement and the market

Requirement                                                  risk capital requirement; or

(2)  The fixed over head requirement

Pillar 1

 

ICAAP

 

Minimum capital 000's

 

Pillar 2 Capital 000's

 

 

 

 

Base Capital

102

-

Credit risk

907

-

Market risk

583

-

1,490

-

Fixed overhead requirement

595

-

Pillar 1 total (higher of CR+MR and FOR)

1,490

1,490

Pillar 2 total

-

ICAAP capital

1,490

Current total capital

11,444

Surplus

9,954


The Fixed Overhead Requirement of £595k equates to 13 weeks of the Firm's annual expenses excluding variable costs. The total Credit and Market risk is £1,490k. The LLP has a surplus reserve of 9,954 as at 30 November 2016 and therefore North Asset Management LLP has the required regulatory capital compared with the variable capital resource requirement (and hence, its Pillar 1 capital resource requirement).

In conclusion, North Asset Management is sufficiently capitalised for the risks to which it is exposed.