Pendragon Capital LLP (“the Firm”) is authorised and regulated by the Financial Services Authority and is categorised as a BIPRU €50,000 Limited Licence Firm for regulatory purposes. The disclosure has been prepared by the firm in accordance with BIPRU 11 and summarises the material disclosures the firm is required to make under Pillar 3 of the Capital Requirements Directive.
Risk Management
The management of the risks of the firm is carried out by the founding partners and the COO of the firm. They are responsible for the oversight of the firm’s compliance and financial arrangements. The governing body review the financial position of the firm on a monthly basis.
The firm is supported in its compliance and accounting arrangements by an independent provider. The firm receives monthly 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 ICAAP 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 faces are as follows:
Market risk
The main market risk of the firm would be foreign exchange risk if the Fund were to raise a material amount of capital in currencies other than sterling. The Fund pays management and performance fees in the currency of the capital raised, As of 31st March 2011, the Firm did not incur market risk.
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 the risk of default by a debtor. As noted above, the firm does not extend credit to its clients. The key credit exposures that the firm has are cash balances maintained with its UK clearer and management and performance fees receivable from its clients. Cash balances are held in deposit accounts and readily available. Management fees are payable within 10 days of their calculation.
Under Pillar 1, cash balances are risk weighted at 1.6% and management fees receivable at 8%. The partners believe that the Pillar 1 risk weight is adequate and that a Pillar 2 adjustment is not required.
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
As a BIPRU €50,000 Limited Licence firm, the firm is not subject to operational risk under Pillar 1. However 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 and operating manuals and monitored regularly as part of the operation process.
Changes to procedures are communicated to partners and staff as they occur and if significant, all individuals will provide a written confirmation of their understanding and acknowledgement of the changes.
Partners and staff remain aware of the policies and procedures and periodically confirm their compliance via a biannual compliance declaration.
Remuneration Risk
As a €50,000 Limited Licence firm, Pendragon Capital LLP falls within Tier 4 of the proportionality guidance notes issued by the Financial Services Authority in December 2010. The firm has applied the principles of proportionality in the disclosures made within this statement.
All decisions in relation to remuneration are made by the three designated partners in the firm. Remuneration is based on the performance of the firm as a whole and not on a single investment strategy. The firm’s only business is investment management. The firm is comprised of four partners who participate in the profits of the firm only after all known liabilities have been accounted for and the current and projected capital resources requirements have been calculated. It is only these individuals who have senior management and risk-taking responsibilities. No remuneration was paid to partners or code staff for the financial year ended 31st March 2011.
Capital Resources
As the firm is a BIPRU €50,000 Limited Licence Firm, it has calculated its capital resources in accordance with GENPRU 2.2. As of 31st March 2011, the Firm only had Tier 1 Capital and that was £265,000.
Capital Resource Requirements
The Firm’s Pillar 1 requirement is calculated as the higher of:
1. The Base Capital Requirement (€50k)
2. The sum of :
The Credit Risk Capital Requirement; and
The Market Risk Capital Requirement
3. The Fixed Overheads Requirement (3 months expenditure of the firm)
In the opinion of the partners the higher of these three is always likely to be the Fixed Overhead Requirement and therefore none of the Base Capital Requirement, the Credit Risk Capital Requirement or the Market Risk Capital Requirement are material to the Firm as set out above.
Pillar 1 and Pillar 2
As at the date of this report the Firm has a surplus of capital resources over its Pillar 1 capital resources requirement.
The Firm has undertaken an Internal Capital Adequacy Assessment Process (ICAAP) 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 does not need any further regulatory capital to meet its requirements under Pillar 2.
Back to homepage