(May 2013)
Parmenion Capital Partners LLP
Corporate Background
Parmenion Capital Partners LLP (“the Firm” or “Parmenion”) is an independent and privately owned limited liability partnership, backed by some of the most experienced investment and technology executives in the industry. We do not offer financial advice or meet with clients ourselves, but only offer investment and client facing solutions as dictated by the demands of modern financial planning.
Parmenion has recently transferred its discretionary fund management research function into a subsidiary company, Parmenion Investment Management Limited and its IT development function into another subsidiary, Sorbin Systems Limited. Both are wholly owned subsidiaries.
Parmenion unites discretionary investment management with a technologically advanced platform to enable Financial Advisers to create their own unique, web-based, client facing investment platform solution, configured and branded to meet with their particular financial planning requirements. Our technology allows access to high quality investment management for every client of an Adviser’s firm.
Parmenion’s online business process enables a Financial Adviser and their client to define an investment mandate with compliant risk profiling, asset allocation and application, in a few simple steps. The requirements of fund research, trade execution, fund switches, rebalancing and reporting are all automated through our platform.
The Firm offers a wide range of investment options via multiple wrappers tailored to specific client needs. These include active and passive investment, strategic and tactical asset allocation, ethical investing and even portfolio management driven by other discretionary investment firms.
Basis of Disclosures, Pillar 1, 2 and 3
This is the Pillar 3 disclosure made in accordance with the UK Financial Conduct Authority ("FCA") Prudential Sourcebook for Banks, Building Societies and Investment Firms ("BIPRU") which is required to be made on an annual basis. The disclosures are subject to external verification only to the extent that they have been drawn from the Firm's audited Financial Statements for the year ended 31 March 2012. The disclosures will be updated when the Firm’s Financial Statements for the year ended 31 March 2013 have been audited.
The objective of Pillar 3 is to improve market discipline through effective public disclosure to complement requirements under Pillar 1 and Pillar 2. To that end, Pillar 3 introduced substantial new public disclosure requirements. This document is intended to provide appropriate public disclosure of the approach undertaken by Parmenion to risk management and capital adequacy.
Pillar 1 specifies the minimum capital resources the firm is required to hold. In the case of the Firm this is the highest of Euro 125,000, the sum of its market and credit risk requirements, and it’s Fixed Overhead Requirement (“FOR”).
Pillar 2 sets out the review process to be used by the Firm and the FCA to determine whether additional capital should be held against any risks not adequately covered by Pillar 1. Under Pillar 2 the Firm is required to analyse a wide range of risks to its business and then consider whether the mitigation in place to address these risks is sufficient or whether additional capital in excess that available under Pillar 1 is required to provide a buffer against specific risks. This procedure forms part of the Firm’s Internal Capital Adequacy Assessment Process (“ICAAP”).
Pillar 3 requires the Firm to develop a set of disclosure requirements which enable market participants to assess information on the risks facing the Firm, its capital resources and risk management procedures.
The Firm has reviewed the range of disclosure requirements prescribed in the FCA Handbook (BIPRU 11 – Disclosure Pillar 3); although not all disclosure requirements apply to Parmenion. As this document has been produced solely for the purposes of providing information on the capital adequacy and risk management of Parmenion, any disclosure requirements that do not apply have not been included.
Location and Verification
The Pillar 3 Disclosures in this document have been approved by the Designated Members (the Governing Body or Board).
They can be located at the foot of the Parmenion website homepage under the heading ‘Pillar 3 Disclosures’ (http://www.parmenion.co.uk/index.php/pillar-3-disclosures). The board believes the publication of these disclosures on the Parmenion website to be the most appropriate medium. The disclosures are based on the position of the Firm as at 31 March 2013and will be updated at a minimum on an annual basis.
Risk Management
Parmenion’s risk appetite is set by the Firm’s Designated Members (the Governing Body). We define risks by recognising the different stakeholder groups, which in turn have different tolerances. Risk is the possibility of financial loss, or disadvantage to partners, investors, clients other stakeholders resulting from the activities of the Firm. The Firm has a risk appetite that is consistent with any recently initiated business funded as a carefully considered speculation and is dependent on a number of different variables; as such the Firm’s overall risk appetite cannot be adequately be categorised as low, medium or high. The size of the Firm and the Governing Body do not believe a separate Risk Department is viable. Management of risk is handled by the Firm’s various departments and committees and business processes.
Risk Appetite
The risk appetite and statement of risk is difficult to articulate as it is affected by different factors, Parmenion do not state risk appetite in one sentence as it is dependent on several variables. The Board defines our risk appetite by recognising the different stakeholder groups, which in turn have different tolerances as well as considering the possibility of financial loss, or disadvantage to partners, investors, clients other stakeholders resulting from the activities of the Firm.
We will at all times aim to maintain enough capital to exceed minimum capital adequacy requirements, the business is managed with an approach that minimises every risk exposure the business is exposed to. The business aims to utilise working capital to its maximum potential to grow the business and meet its business targets always recognising the importance of the balance between regulatory capital and making sound business judgements.
The ICAAP Process
Parmenion has embedded risk management in its business divisions through a matrix of risk registers. Risk appetite and tolerances are reviewed and approved not less frequently than annually, by the Board.
The ICAAP is a process that brings together the risks the Firm faces and the financial discipline of budgeting and business planning. The ICAAP is updated at least annually, unless there are any changes and events that warrant a more immediate update.
When reviewing and challenging each ICAAP update the Governing Body will review its stated risk appetite and compare it against actual performance. It also considers the appropriateness of the stress tests performed as part of this process. Not all material risks can be mitigated by capital but where capital is appropriate the Governing Body has adopted an approach to determine the level of capital that needs to be held in reserve against that particular risk.
Adequacy and Reviews
We assess our capital adequacy to support current and future activities in a number of ways.Pillar 1 capital adequacy is monitored on an ongoing basis for compliance with capital requirements, and is reviewed formally by the Governing Body within the Board Meetings. The Board will consider the need to change capital forecasts and capital plans based on such reviews. We assess internal capital adequacy, as required by Pillar 2, on a quarterly basis within the Board Meetings. Pillar 2 capital adequacy assessments involve:
- a consideration of Parmenion’s current and planned activities in the economic and regulatory framework;
- stress and scenario testing as considered appropriate to the nature of the Firm’s activities;
The Board challenges and monitors for compliance with capital forecasts and ‘actual’ levels of business and budgeting at Board Meetings.
Details of the material risks listed in the Financial Service Authorities General Prudential Sourcebook and the Firm’s tolerance level toward them are detailed below. Parmenion does not follow the VaR model for calculating its market risk capital requirement.
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Risk Area |
Approach to Risk |
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Credit Risk Very Low |
Parmenion does not offer credit and the Firm’s tolerance to credit risk is defined by the board as Very Low. The majority of credit risk exposure comes mainly from deposits with third parties (banks/institutions), which are maintained in secure institutions to a credit rating of AA or better. We only use robust 3rd parties and banks. |
|
Liquidity Risk Moderate |
The Firm currently has no material liquidity risk, but we do readily recognise this as a moderate risk to the business which is offset by an undertaking from its most significant member to supply funds through a loan facility under extreme circumstances as well as tight control on budgets and cash flow forecasts to provide relevant liquidity information on an ongoing basis providing a clear analysis of the on-going cash position. |
|
Market Risk Medium |
Parmenion has a medium tolerance for market risk we generate revenue from client asset related fees, fluctuations in the market do material affect Parmenion’s income. The Firm is not exposed directly to market risk, as it does not hold principal positions. The impact of market movements on the capital position of the Firm is considered under Business Risk. |
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Operational Risk Medium |
The Firm carries out a risk assessment in its ICAAP process in which the operational risks faced are considered. The Firm considers that it has robust controls in place, particularly in the segregation of duties in relation to cash and stock transfers, to protect it from the operational risks identified in its risk assessment. The business operations of the Firm are at risk of disruption from one off events, such as terrorism, flooding or fire. To counter this risk, the Firm has a Disaster Recovery Plan. The Firm also maintains off-site facilities and back-up computer systems for the Firm with a third party provider, which are tested each year. The Firm’s insurance covers office loss and business continuity. The Firm has adopted the Basic indicator approach (15% of average of last three years revenue) for its calculation of its Pillar 2 Operational Risk. |
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Insurance Risk No exposure |
The Firm maintains Professional Indemnity (“PI”), Directors & Officers Liability (“D&O”), and Commercial/Office Insurance for the benefit of the Firm. The policies, which are in market standard terms, cover the most likely sources of loss to the Firm to a level that is proportionate to the scale of the Firm’s business. The policies are underwritten by insurers with satisfactory credit ratings. In the event that any of these policies do not pay out as soon as anticipated, the Firm’s existing regulatory capital resource requirement (which is based on its Fixed Overhead Costs) and its access to additional capital from its members mean that the Firm is in a position to continue to operate. In the event that a particular loss falls outside the terms of its insurance, the Firm’s management will, where appropriate, make provision in the ordinary course of business for such potential losses as soon as is prudent. Having considered the policy excesses, no additional capital has been allocated under the ICAAP to cover an exposure the Firm may face outside the fixed overhead costs taken into account in its regulatory capital resource requirement. |
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Concentration Risk No Exposure |
The Firm has no material concentration of credit risk. |
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Residual Risk No Exposure |
The Firm does not lend money and has very few trade debtors with its credit risk exposure limited to cash held by banks. |
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Securitisation Risk No Exposure |
This risk is not relevant to the Firm |
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Business Risk and Stress Testing Medium |
The Firm considers that the risk that it may not be able to carry out its current business plan and desired strategy derives principally from a drop in revenue due to: a fall in the equity markets; commercial pressure from competitors; or damage to the Firm’s reputation, either through damage to the investment management market or to the Firm itself. As required as part of the Firm’s ICAAP, the Firm has conducted stress testing on its financial forecasts for both income and capital. The stress tests are based on a combination of adverse events including significant falls in the equity markets. The testing shows that the Firm has the financial resources to continue to trade during such scenarios with capital resources in excess of its regulatory capital resource requirement. The Firm’s management, which also represents its key shareholders, is well placed to take the necessary management action to protect the Firm’s trading position. |
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Interest Risk Low |
This risk is not relevant to the Firm. Although we are exposed to general changes in interest rate risk in as much as it gives us a fluctuating income, this is covered under Market Risk and we do not have general exposure to Interest Rate Transactions. |
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Pension Obligation Risk No Exposure |
This risk is not relevant to the Firm |
Regulatory Capital Resources
Firm Regulatory Capital Resources (as at 31st March 2012)
Tier One Capital (£’000)
Partners Capital 777
Deductions from Tier one capital 0
Tier one capital after deductions 777
Tier two capital 0
Tier three capital 0
FOR regulatory capital resources 777
Remuneration Disclosures
The FCA has amended the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU), and specifically BIPRU 11, to now include a requirement for disclosure of Parmenion’s approach to linking remuneration to risk.
Under the FCA's Remuneration Code (the "Code"), the Parmenion falls into proportionality level three (3), which allows it to dis-apply many of the technical requirements of the Code and proportionately apply the Code's rules and principles in establishing Parmenion’s policy.
The Code requires Parmenion to consider its processes and procedures for those senior and whose professional activities have a material impact on the Firm’s risk profile or may be considered as Code Staff. Parmenion is satisfied that the policies in place are appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities.
Code Staff Criteria
It has been determined that only those Senior management, risk takers, Approved Persons performing Significant Influence Functions and any other Controlled Function and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the Firm’s risk profile, are to be classified as Code Staff. Remuneration of staff is considered by a remuneration group the Remuneration Committee made up of main Board Directors and the Managing Partner who considers remuneration policy and awards for all staff, including Code Staff. Awards are subject to a defined review and sign-off process. No external consultants are used.
Parmenion has stated that its objective is to build the business over the longer term and thereby maximise the return to shareholders, while paying proper regard to the interests of all our stakeholders (including employees, clients, shareholders) and to the surrounding communities in which it operates.
The strategy to achieve this objective is focused primarily through the maximisation of investment returns to its clients in accordance with its contractual relationships. Additionally, Parmenion seeks to grow the business through a combination of both organic growth and carefully selected Partnering, which either reinforce the business's existing activities or diversifies it into complementary business lines.
It is acknowledged that the reputation and success of the Firm is due to the service provided to clients by highly qualified and committed staff. Staff are therefore one of the key assets of the organisation and it is its policy to attract and retain the best people. In light of the above, when fixing the remuneration policies and packages for current and future periods the Firm will have the following in mind:
- the need to attract, retain and motivate staff of the quality required;
- what comparable companies are doing, taking into account relative performance; and
- pay and employment conditions.
By paying due regard to these factors, the Firm believes it can attract and retain the best quality staff, thereby ensuring that its long term interests are looked after.
Information on the link between pay and performance
Parmenion recognises the responsibility all staff have in driving its future success and delivering value for shareholders and that remuneration is a key component in motivating and rewarding those staff.
Staff remuneration is based on competitive market-based salaries that fairly compensate employees in view of skills provided, work performed and responsibility undertaken.
Overall remuneration includes:
Basic remuneration for Code Staff is market related thus ensuring a competitive salary that fairly reflects the market rate, skill, experience and expertise for the role. Individual development is reflected through the annual personal review process.
Variable remuneration will be based upon the profit generated by the Firm, after satisfying minimum requirements. There is no minimum or maximum level of variable remuneration.
· Fixed remuneration consists of base salaries only
· Annual variable discretionary bonus incentive compensation reflecting individual performance and responsibility, both short-term and long-term, as well as Parmenion’s overall performance.
· Regional Sales Staff responsible for working with supporting introducers receive sales commission, paid quarterly, based on funds introduced for investment.
.Aggregate quantitative information on remuneration for Code Staff.
For the year ending 31st March 2012 there were 6 code staff.
The "de minimis" concession, excludes Code Staff who earn less than £500,000 per annum and whose variable remuneration is less than 33% of their total remuneration. All the Firms code staff fall within this de-minimis bracket.