Jackdaw Capital Management Limited (“the Firm”) is authorised and regulated by the Financial Conduct Authority (firm reference number: 655767).
Risk Management: The day-to-day management of the risks of the firm is carried out by its management who meet formally on a monthly basis with a set agenda and key decisions are documented. The firm is supported in its compliance and its financial accounts by independent providers. The firm receives regular management accounts from which it is able to monitor and project its capital resources. It has a compliance manual, a compliance monitoring programme and an ICARA process that ensures it is able to manage the risks that it faces. Given the nature and activities of the firm, its risk appetite is low. It does not deal in a principal capacity and therefore does not have a trading book.
The key risks that it potentially faces are as follows:
Market risk: The main market risk of the firm is foreign exchange risk as a result of foreign currency holdings, primarily Euros. The management monitors this risk on a daily basis.
Interest rate risk: The firm is not exposed to interest rate risk as it does not rely on borrowings to meet operating expenditure and does not make loans to clients.
Credit risk: The main credit risk of the firm is a defaulting debtor. The firm does not extend credit to its clients.
Liquidity risk: The liquidity risk that the firm faces is the inability to settle its liabilities as they fall due. Part of the risk management structure noted above monitors the liquidity position of the firm at all times. Bank reconciliations and cash flows are prepared on a regular basis to ensure that all liabilities are understood and able to be settled as they fall due. Cash resources of the firm are maintained in accounts with instant access as noted above.
Operational risk: The firm is aware of the reputational damage that could result from a failure in operating procedures. The firm’s key policy and procedures are documented in the compliance manual and monitored via the compliance monitoring programme. Changes to procedures are communicated to management and staff as they occur and if significant all individuals will provide a written confirmation of their understanding and acknowledgement of the changes. Management and staff remain aware of the policies and procedures and periodically confirm their compliance via an annual compliance declaration.
Capital Resources: The Firm has undertaken an Internal Capital Adequacy and Risk Assessment Process (ICARA) to determine whether it needs any further regulatory capital due to the risks it faces as set out above. As a result of this, the Firm has concluded that it needs no additional level of capital resources to meet its requirements.
UK Stewardship Code
Stewardship is defined as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.” Under COBS 2.2.3 of the FCA Handbook, we are required to make a public disclosure in relation to the nature of our commitment to the Stewardship Code, which was published by the Financial Reporting Council (‘FRC’) in July 2010 and amended in September 2012 and January 2020. Where we do not commit to the Code we are required to disclose our alternative investment strategy.
The Code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. It sets out good practice on engagement with investee companies. The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may judge some of the principles and guidance to be disproportionate. It is of course legitimate for some asset managers not to engage with companies, depending on their investment strategy.
The Code does not prescribe a single approach to effective stewardship. Instead, it allows organisations to meet the expectations in a manner that is aligned with their own business model and strategy. The investment market has changed significantly since the publication of the first UK Stewardship Code. There has been significant growth in investment in assets other than listed equity, such as fixed income bonds, real estate and infrastructure. These investments have different terms, investment periods, rights and responsibilities and signatories will need to consider how to exercise stewardship effectively in these circumstances.
Environmental, particularly climate change, and social factors, in addition to governance, have become material issues for investors to consider when making investment decisions and undertaking stewardship. The Code also recognises that asset owners and asset managers play an important role as guardians of market integrity and in working to minimise systemic risks as well as being stewards of the investments in their portfolios.
There are twelve “Apply or Explain” principles for asset owners and asset managers:
- Purpose, strategy and culture
- Governance, resources and incentives
- Conflicts of interest
- Promoting well-functioning markets
- Review and assurance
- Client and beneficiary needs
- Stewardship, investment and ESG integration
- Monitoring managers and service providers
- Exercising rights and responsibilities
Whilst we support the principles underlying the Code, the Firm does not currently comply with the Code for the following reasons: Accordingly, whilst the Firm supports the Code as a mechanism to promote best practice in the institutional shareholder conduct of UK listed companies, it does not consider the Code or its principles to be appropriate for its strategies.
Given the nature and small size of the business, remuneration for all employees is set by the Chief Executive Officer (CEO) of the firm. The aggregate level of remuneration earned is disclosed in our audited financial statements. The remuneration of staff will be assessed annually in accordance with our remuneration policy and appraisal process and will consist of a base salary review and sometimes a review of performance-related variable compensation. The firm strives to ensure that this remuneration scheme does not encourage inappropriate behaviour. To prevent a conflict of interest, the remuneration of employees is not directly linked to sales and the remuneration structure considers a number of different factors including a good standard of compliance.
Our remuneration policy complies with the remuneration code in relation to the size, nature, scope, and complexity of our activities. The policy is designed to be consistent with, and promote, sound and effective risk management. In addition, any variable remuneration arrangements are reviewed periodically to ensure their effectiveness. The remuneration policy follows the remuneration code requirements within the FCA’s handbook of rules and guidance. Given our modest balance sheet size, employee remuneration is composed of a base salary, discretionary bonuses, and additional benefits (including pension contributions, etc). The discretionary bonus is based on both the firm’s and employee’s performance and behaviours and is considered by the CEO. In 2022, the total amount of remuneration awarded to all staff, split into:(a) fixed remuneration was £75,388; and (b) variable remuneration was £0.
Our approach to assessing compliance with the overall financial adequacy rule is to undertake a regular Internal Capital Adequacy Risk Assessment (ICARA) process. Under ICARA, we are required to determine overall financial adequacy (OFAR). OFAR makes the split between capital requirements for ongoing operations and capital requirements for an orderly wind down, with the capital retained being the higher of the two. We maintain a wind-down plan and assessed the amount of our own funds and liquid assets required to support an orderly wind-down of the firm.
The CEO is responsible for setting the firm’s risk appetite, defining the type and level of risk that the firm is willing to accept in pursuit of its business objectives. The policy is aligned to our business strategy, objectives, values, and long-term interests in respect of performance and effective risk management in line with the firm’s risk appetite.
Risk Assessment Framework
The CEO is responsible for approving the Risk Assessment Framework, which is used to ensure that the firm has a comprehensive understanding of its risk profile, including both existing and emerging risks faced, and to enable it to assess the adequacy of its risk management in the context of the firm’s risk appetite.