Conflicts of Interest Policy
CAPRICORN FUND MANAGERS LIMITED
CONFLICTS OF INTEREST POLICY
Date: 12th November 2015
Regulated by the FCA, the Firm has a fiduciary duty to manage and deal in the best interests of its clients and – where applicable – the investors in the AIFs (Alternative Investment Fund) in respect of which the Firm acts as AIFM (Alternative Investment Fund Manager).
The Firm has an obligation to manage and deal in the best interests of its clients.
FCA Principle 8 requires the Firm to manage conflicts of interest fairly, both between the Firm and its clients as well as between one client and another client. Where the Firm acts as AIFM to an AIF, this obligation is extended to managing conflicts in such a manner to prevent them from adversely affecting the interests of the AIF or its investors and to ensure that the AIFs managed are fairly treated.
SYSC 10.1 requires the Firm to take all reasonable steps to identify conflicts of interest between:
The Firm (including its managers, staff or any person directly or indirectly linked to them by control), and a client of the Firm; or
One client of the Firm and another client.
With respect to AIFs in respect of which the Firm acts as AIFM, the requirement is extended to identifying conflicts of interest between:
- the Firm and the AIF or its investors
- the AIF or its investors and another AIF or its investors
- the AIF or its investors and another client of the Firm
- The AIF or its investors and a UCITS (Undertakings for the Collective Investment of Transferable Securities) managed by the Firm or its investors
Accordingly, the Firm's Conflicts of Interest Policy is designed to identify, assess, manage and if appropriate, disclose all potential and actual conflicts of interest in the Firm's business.
Types of Conflict
The Firm undertakes investment management services on behalf of multiple clients, which include both funds and managed accounts.
For the purposes of identifying the types of conflict and potential conflicts that arise which may entail a material risk of damage to the interests of a client, the Firm must take into account whether the Firm or a relevant person, or a person directly or indirectly linked by control to the Firm:
Is likely to make a financial gain, or avoid a financial loss, at the expense of the client or an AIF investor
Has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client's interest in that outcome or an AIF investor
Has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client or an AIF investor
Carries on the same business as the client or an AIF investor
Receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services other than the standard commission or fee for that service
The Firm has robust governance arrangements and management oversight of the business. Key business decisions are taken by the Board who understand the Firm's obligations to manage and mitigate conflicts of interest.
The Compliance Officer is tasked with identifying conflicts of interest and reports directly to the Board. Management information relevant to identifying conflicts is reviewed by the Compliance Officer (including risk reports, monitoring of account and position statements produced by the Firm's third-party administrators for client assets and other risk scenarios).
The Firm has a Conflicts Register (below) that seeks to identify and mitigate the Firm's potential and actual conflicts of interest.
This Policy will be reviewed annually by the Board as part of the Compliance Officer's Report with respect to Senior Management Arrangements, Systems & Controls ("SYSC”).
Segregation of functions
The Firm has defined and clear reporting lines. An organisational chart is maintained by the Compliance Officer.
The Firm has structured its senior management to appropriately segregate duties so as to avoid conflicts of interest wherever possible.
The Firm also has external compliance consultants to advise on the Firm's compliance programme, to undertake independent monitoring of the Firm's regulatory obligations, including management of conflicts of interest.
The Firm has a documented Remuneration Policy detailing the Firm's approach to remuneration and compensation arrangements.
The Firm's interests and the staff's interests are aligned with those of the Firm's clients. The level of remuneration is dependent on the success of the Firm as a whole and key individual remuneration is a discretionary annual bonus linked to client gains. Portfolio risk management arrangements as well as Fund/Client mandate manage and govern any potential conflict where too much risk is being taken with a client's portfolio in order to increase potential fees.
Staff and Directors are required to disclose in writing any conflicts of interest upon commencement of employment with the Firm and on a periodic basis. Staff and Directors will disclose any conflicts of interest directly to the Compliance Officer and, if necessary, to the Board.
Disclosure to Clients
The Firm discloses to its clients and AIF investors, in its offering memoranda and other documents, all material conflicts in sufficient detail so as to allow the client or an AIF investor to take an informed decision in relation to the service offered.
If the Firm's arrangements to manage a potential conflict of interest are not sufficient to ensure with reasonable confidence that the risk of damage to that client's or AIF investor's interests is prevented, the Firm will inform the client or AIF investor in writing or on the Firm's website.
Policies & Procedures
The Firm has comprehensive policies and procedures documented in the Compliance Manual, which are designed to establish consistent controls to manage and mitigate conflicts. The Compliance Manual is reviewed by the Firm annually and when the Firm's business changes, to ensure the policies and procedures are current and effective.
Conflicts of Interest Register
|Potential & Actual Conflicts||Mitigating Controls|
|Valuation - Where the Firm may exercise a significant amount of influence over valuations of hard to value securities in its favour, which may increase fees and/or assets under management. The ability of the Firm to influence the reported valuation of its fund could be to the detriment of investors entering or exiting the fund.
||Documented Valuation Policy.
Independent Administrator, on behalf of the Fund with respect to the AIFs that the Firm manages. There is a regulatory requirement documented in the Firm's Valuation Policy for the Firm to – inter alia – conduct initial and ongoing due diligence on the external valuer.
Periodic external audits of asset valuation are implemented.
|Allocation – Where the Firm gives priority in trade allocation to one client over other clients.||Documented Allocation Policy
The firm implements an aggregation of trades
The firm implements consistent fee structures
|Different strategies and mandates – Where different objectives and mandates might lead to a conflict between the Firm and its clients.
||Documented Allocation Policy|
|Exit phase – delaying wind down of a fund in order to prolong receipt of fees||Fund always managed in the best interests of clients|
|Independent performance of risk management function – the risk management function should operate independently from other business functions, in particular, portfolio management.||The Firm employs a dedicated Risk Officer that does not perform a front office role and whose variable remuneration is based upon the performance of his duties. The Firm is
small in nature and therefore has applied the principle of proportionality with respect to the risk management function. The Risk Officer is Darryl Noik who is Chief Operating Officer at Capricorn Fund Managers Limited and reports directly to the Board of the Firm. Furthermore, the arrangement is monitored by the Firm's senior management.
|Delegation – Where the Firm delegates key functions to third parties that have other clients and/or competing obligations||Documented delegation policy
Written agreements with third parties
Where applicable, third parties are required to disclose conflicts to the Firm
|Liquidity profile – Redemption requests where the AIF invests in
|Documented liquidity policy
There is alignment of liquidity profile, liquidity limits and stated investment objective/strategy
Liquidity stress testing
|Preferential access given to certain investors for co-investment||
Preferential access not typically granted
|Remuneration – Where portfolio manager remuneration is performance based, there is an incentive to manage funds in a more speculative and risky manner. Care needs to be exercised to ensure that managers do not seek to improve performance by taking on overly risky positions close to a valuation date in the hope of reaching the performance target.||Trading strategy focuses on the long term and comply the investment mandate set out in the offering memorandum or investment management agreement.
Compliance with the restrictions is monitored on a regular basis, by the risk management function.
|Cross Transactions – Where crossing is not in the best interests of both
|Any cross transaction is in the best interests of all clients
Trades executed at market price/price agreed by both clients
|Personal Account Dealing - Where staff undertake personal securities
transactions while potentially in receipt of material non-public information or front run client accounts.
|Personal Account Dealing Policy
Pre-approval of trade requests
Prohibition on use of inside information
|Gifts & Inducements – Where gifts and inducements given to or received by
brokers/service providers influence the business relationship between the Firm and its service providers to the detriment of the client.
|Gift & Entertainment Policy
Gift & Entertainment Register
|Outside Business Activities & Directorships - Where staff undertake outside business activities which may conflict with the interests of the accounts and funds managed by the Firm.||Disclosure and approval of all outside business activities|