MIFID 8 Disclosure

Financial Year Ended: 31st March 2024

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The Financial Conduct Authority (“FCA” or “regulator”) sets out its prudential expectations for UK regulated firms within a specialist sourcebook within the FCA Handbook, known as (“MIFIDPRU”). MIFIDPRU is broken into numerous chapters which set out the detailed prudential requirements that apply to Perbak Capital Partners LLP (“Perbak” or the “Firm”). Specifically, chapter 8 of MIFIDPRU (“MIFIDPRU 8”) sets out public disclosure rules and guidance with which the Firm must comply, further to those prudential requirements and as highlighted by this disclosure.

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Perbak is classified under MIFIDPRU as a non-small and non-interconnected MIFIDPRU investment firm (“Non-SNI MIFIDPRU Investment Firm”). As such, the Firm is required by MIFIDPRU 8 to disclose information on the following areas:

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• Risk management objectives and policies;

• Governance arrangements;

• Own funds;

• Own funds requirements; and

• Remuneration policy and practices.

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The purpose of this disclosure is to give stakeholders and market participants an insight into the Firm’s culture and data on the Firm’s own funds and own funds requirements, allowing potential investors to assess the Firm’s financial strength. This document has been prepared by Perbak in accordance with the requirements of MIFIDPRU 8 and is verified by the Executive Committee. Unless otherwise stated, all figures are as at the Firm’s 31 March 2024 financial year-end.

 

Risk Management Objectives and Policies 

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Perbak provides discretionary investment management service to its clients. Perbak’s clients are the AIFs that it manages and the beneficial owners of the separately managed accounts it manages. Perbak operates a Global Market Neutral Equity strategy with a focus on corporate failure and fraud. Perbak grows revenues by increasing the underlying asset base on which it charges a management fee. This is achieved through growth of the Firm’s client’s assets through capital inflows and value creation.

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Risk Appetite

In pursuing its business strategy, the Firm acknowledges that its activities may give rise to certain risks that carry a potential for harm to clients, the market, or the Firm itself. The Firm defines “risk appetite” as the level of risk that the Executive Committee considers is acceptable for a given risk or group of risks. These risks are identified, assessed, and managed through the Firm's ICARA process, which is central to its approach to risk management. The ICARA assessment ensures the Firm maintains adequate financial and operational resources to address these risks, including those arising from market conditions, operational challenges, or strategic decisions.

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The Executive Committee is committed to managing all the risks the Firm faces. The Executive Committee has decided that the Firm’s overall appetite for risk in business operations is low and it encourages all staff to identify, escalate and minimise risks as much as possible.

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Below we describe Perbak’s risk management objectives and policies for the categories of risk addressed by the requirements of the Firm in the following areas:

• Own funds;

• Concentration risk; and

• Liquidity

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Own Funds Requirement

Perbak is required to maintain own funds that are at least equal to the Firm’s own funds requirement. The own funds requirement is the higher of the Firm’s:

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• Permanent minimum capital requirement (“PMR”): The level of own funds required to operate at all times. Based on the MiFID investment services and activities that the Firm currently has permission to undertake this is set at £75,000;

• Fixed overhead requirement (“FOR”): This is equal to one quarter of the Firm’s relevant expenditure, based on the prior year audited financial statements;

• ICARA and Wind-Down: The minimum amount of capital and liquidity that Perbak would need to have to absorb losses or cost as a result of risks faced and if the Firm has cause to wind down and exit the market; and,

• K-factor requirement (“KFR”): The KFR is intended to calculate a minimum amount of capital that Perbak would need for the ongoing operation of its business. The K-factors that apply to the Firm’s business are K-AUM (calculated on the basis of the Firm’s assets under management (“AUM”)), and K-DTF (calculated on the basis of the rolling average of a firm’s daily trading flow).

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Perbak’s own funds requirement is currently set by its FOR, as this is the highest of the metrics. The potential for harm associated with Perbak’s business strategy, based on the Firm’s own funds requirement, is deemed to be low. This is due to the relatively consistent and stable growth in the Firm's revenues and asset base. Additionally, costs are controlled to ensure prudent management of the business.

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Perbak maintains a healthy own funds surplus above the own funds requirement to mitigate the risk that it falls below the threshold. In the event that the Firm’s own funds drop to an amount equal to 110% of its own funds threshold requirement, the FCA will be notified as soon as is practicable by the Compliance function.

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Concentration Risk

The potential for harm associated with Perbak’s business strategy, based on the Firm’s concentration risk, is low. The Firm has multiple clients, which provides for a diverse stream of revenue. Clients are funds and managed accounts directly managed by Perbak. The Firm considers that it has a safe and predictable revenue stream including during stressed market conditions. With regard to the fund vehicles, the investors are typically institutional professional investors that invest for the long term. The Firm, therefore, considers that its asset base is ‘sticky’ and not prone to substantial fluctuations, including during stressed market conditions.  From a cash management perspective, the Firm deposits its cash with a number of well-established multinational institutions to spread concentration risk.

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Liquidity

Perbak is required to maintain sufficient liquidity to ensure that there is no significant risk that its liabilities cannot be met as they fall due and, further, to ensure that it has appropriate, liquid resources in the event of a stressed scenario (as tested during Perbak’s ICARA process). The potential for harm associated with Perbak’s business strategy, based on its basic liquid assets requirement, is low. Perbak retains an amount it considers suitable for providing sufficient liquidity to meet the working capital requirements under various conditions The cash position of the Firm is monitored by the Chief Operating Officer periodically.

 

Risk Management Structure

Perbak’s Chief Risk Officer (“CRO”) and Chairman of the Risk Committee has day-to-day responsibility for performing the risk management function, including the monitoring of individual exposures, ensuring that specific limits are not breached, and conducting regular stress tests to the portfolios under a range of normal and abnormal scenarios. The CRO has the necessary authority and experience within the Firm to perform this role. The CRO is functionally separate from the investment team and is not involved in the investment decision making process, therefore his role in the Risk Committee is to ensure any, and all prescribed limits are adhered to. The Risk Committee will meet at least monthly and be responsible for ensuring there is no portfolio risk which would conflict with the Firm’s risk framework. The Risk Committee has ultimate responsibility for the Firm’s risk management and controls, for reviewing their effectiveness on a regular basis, and for implementing improvements to any identified deficiencies.

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Government Arrangements

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Overview

Perbak believes that effective governance arrangements help the Firm to achieve its strategic objectives while also ensuring that the risks to the Firm, its stakeholders, and the wider market are identified, managed, and mitigated. The Executive Committee has overall responsibility for Perbak and is therefore responsible for defining and overseeing the governance arrangements at the Firm.

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In order to fulfil its responsibilities, the Executive Committee meets on a monthly basis. Amongst other things, the Executive Committee approves and oversees the implementation of the Firm's strategic objectives and risk appetite, ensures the integrity of the Firm's accounting and financial reporting systems, including financial and operational controls, ensures compliance with the requirements of the regulatory system, assesses the adequacy of policies relating to the provision of services to clients, and provides oversight of the Firm’s senior management.

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A key document that is reviewed, discussed, and ratified by the Executive Committee at least annually is the Senior Management Systems and Controls Document (“SYSC Document”), as this demonstrates how the Firm has met its obligations with regard to its governance arrangements.

The Executive Committee members do not hold any Executive or Non-Executive Directorships.

 

Policy on Diversity and Inclusion

The Firm adheres to diversity and inclusion standards and integrates these principles into its operations and culture at the firm level. Whilst Perbak understands the advantages that a diverse team can offer, we do not consciously look to equalise gender or minority ratios and do not set any diversity goals for hiring. Instead, when hiring, Perbak looks to recruit the most suitable candidate in each case. 

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Own Funds

​As at 31 March 2024, Perbak maintained own funds of £2,000,000 The below regulator-prescribed tables provide a breakdown of the Firm’s own funds:

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Own Funds Requirements

Perbak is required to at all times maintain own funds that are at least equal to the Firm’s own funds requirement. The own funds requirement is the minimum requirement of capital the Firm is required to hold, taken as the higher of the PMR, FOR and KFR.

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The below illustrates the core components of Perbak’s own funds requirements:

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Perbak is also required to comply with overall financial adequacy rule (“OFAR”). This is an obligation on Perbak to hold own funds and liquid assets which are adequate, both as to their amount and quality, to ensure that:

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• The Firm is able to remain financially viable throughout the economic cycle, with the ability to address any material potential harm that may result from its ongoing activities; and

• The Firm’s business can be wound down in an orderly manner, minimising harm to consumers or to other market participants.

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Where Perbak determines that the FOR is insufficient to mitigate the risk of a disorderly wind-down, the Firm must maintain ‘additional own funds required for winding down’, above the FOR, that are deemed necessary to mitigate the risks of a disorderly wind-down. Similarly, where the Firm determines that the KFR is insufficient to mitigate the risk of harm from ongoing operations, the Firm must maintain an amount of ‘own funds required for ongoing operations’, above the KFR, that is deemed sufficient to ensure the viability of the Firm throughout economic cycles.

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The Firm’s own funds threshold requirement is the higher of:

• The Firm’s PMR;

• The sum of the Firm’s FOR and its additional own funds required for winding down as calculated via the ICARA; and

• The sum of the Firm’s KFR and its additional own funds required for ongoing operations.

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This is the amount of own funds that Perbak is required to maintain at any given time to comply with the OFAR.

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To determine the Firm’s own funds threshold requirement, Perbak identifies and measures the risk of harm faced by the Firm and considers these risks in light of its ongoing operations and also from a wind-down planning perspective. The Firm then determines the degree to which systems and controls alone mitigate the risk of harm and the risk of a disorderly wind-down, and thereby deduces the appropriate amount of additional own funds required to cover the residual risk.

This process is documented and presented to, and ratified by, the Executive Committee on at least an annual basis.

Remuneration Policy and Practices

Overview

As a Non-SNI MIFIDPRU Investment Firm, Perbak is subject to the basic and standard requirements of the MIFIDPRU Remuneration Code (as laid down in Chapter 19G of the Senior management arrangements, Systems and Controls sourcebook in the FCA Handbook (“SYSC”)). The purpose of the remuneration requirements is to:

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• Promote effective risk management in the long-term interests of the Firm and its clients;

• Ensure alignment between risk and individual reward;

• Support positive behaviours and healthy firm cultures; and

• Discourage behaviours that can lead to misconduct and poor customer outcomes.

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The objective of Perbak’s remuneration policies and practices is to establish, implement and maintain a culture that is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profile of the Firm and the services that it provides to its clients.

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In addition, Perbak recognises that remuneration is a key component in how the Firm attracts, motivates, and retains quality staff and sustains consistently high levels of performance, productivity, and results. As such, the Firm’s remuneration philosophy is also grounded in the belief that its people are the most important asset and provide its greatest competitive advantage.

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Perbak is committed to excellence, teamwork, ethical behaviour, and the pursuit of exceptional outcomes for its clients. From a remuneration perspective, this means that performance is determined through the assessment of various factors that relate to these values, and by making considered and informed decisions that reward effort, attitude, and results.

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Characteristics of the Firm’s Remuneration Policy and Practices

Remuneration at Perbak is made up of fixed and variable components. All members of staff are paid a fixed salary commensurate with their role, experience and qualifications. All members of staff also receive pension allowance and benefits which make up the fixed component. The fixed salary is set in line with market competitiveness at a level to attract and retain skilled staff and is benchmarked against industry standards.

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Variable remuneration is paid on a discretionary basis and takes into consideration the Firm’s financial performance as well as the financial performance of each business unit, and the financial and non-financial performance of the individual in contributing to the Firm’s success. The size of the bonus pool is entirely at the discretion of the Executive Committee and is determined by profits. If there are no profits, then it is likely that there will be no bonus pool. All staff members are eligible to receive variable remuneration.

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In addition to the discretionary bonus scheme mentioned above, Perbak has deferred compensation schemes in place for qualified employees and select individuals which are designed to align the interests of employees and select individuals with those of the Firm and its clients while promoting staff retention and commitment.

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The ultimate decision on variable remuneration to be awarded to staff members is made by the Firm considering its current profits and any future capital required to be put aside for expansion plans or for regulatory capital purposes on the basis of forecasts. The outcome of these considerations will then be used to determine a bonus pool to be distributed to staff members. The amount allocated to each individual will be based on their overall contribution to the Firm as a whole, is fully discretionary and the decision rests with the Executive Committee. Any bonus pool will always be based on the profit of the Firm and not future income. The Executive Committee will also consider the Firm’s financial and capital position, taking into account any potential costs/capital strains which may occur over the coming year. The bonus pool is linked to the performance of the Firm as a whole and not individual trading performance. The key financial performance measures used to determine the total variable pay-out is the Firm’s net profit/loss after all expenses have been paid and this will be supplemented by an assessment of other key performance measures and identified risks outlined within the Firm’s Internal Capital Adequacy Risk Assessment (“ICARA”).

 

Individual staff performance at Perbak is determined using financial and non-financial criteria on a meritocratic basis which is gender neutral. Performance is based on a range of criteria on which each staff member, taking into account their role, is assessed. The performance of staff members is not based upon contribution to investment performance only; it also includes factors such as their adherence to the Firm’s compliance policies and risk limits. Any violations of these policies will be considered when determining variable remuneration and may have a negative impact on the amount of variable remuneration awarded.

The fixed and variable components of remuneration are appropriately balanced: the fixed component represents a sufficiently high proportion of the total remuneration to enable the operation of a fully flexible policy on variable remuneration. This allows for the possibility of paying no variable remuneration component, which the Firm would do in certain situations, such as where the Firm’s profitability performance is constrained, or where there is a risk that the Firm may not be able to meet its capital or liquidity regulatory requirements.

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Governance and Oversight

The Executive Committee is responsible for setting and overseeing the implementation of Perbak’s remuneration policy and practices. In order to fulfil its responsibilities, the Executive Committee:

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• Is appropriately staffed to enable it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital, and liquidity.

• Prepares decisions regarding remuneration, including decisions that have implications for the risk and risk management of the Firm.

• Ensures that the Firm’s remuneration policy and practices take into account the public interest and the long-term interests of shareholders, investors, and other stakeholders in the Firm.

• Ensures that the overall remuneration policy is consistent with the business strategy, objectives, values, and interests of the Firm and of its clients.

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Perbak’s remuneration policy and practices are reviewed annually by the Executive Committee.

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Material Risk Takers

Perbak is required to identify its material risk takers - those members of staff whose professional activities have a material impact on the risk profile of the Firm (and of the assets that the Firm manages). The types of staff that have been identified as material risk takers at Perbak are:

• Members of the management body in its management function;

• Members of the senior management team;

• Those with managerial responsibility for a client-facing or client-dealing business unit of the Firm;

• Those with managerial responsibilities for the activities of a control function [A control function is defined as a function (including, but not limited to, a risk management function, compliance function and internal audit function) that is independent from the business units it controls and that is responsible for providing an objective assessment of the Firm’s risks, and for reviewing and reporting on those risks].;

• Those with managerial responsibilities for the prevention of money laundering and terrorist financing;

• Those that are responsible for managing a material risk within the Firm;

• Those that are responsible for managing information technology, information security, and/or outsourcing arrangements of critical or important functions; and

• Those with authority to take decisions approving or vetoing the introduction of new products.

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In identifying which of its employees are MRTs, in addition to the criteria set out in SYSC 19G.5.3R, the Firm considered the criteria in SYSC 19G.5.5G.

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Ex Ante and Ex Post Adjustments

The Firm faces various current and future risks, which include both financial risks and non-financial risks.

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Financial risks include:

• risks relating to the Firm’s revenue;

• risks relating to the Firm’s profit;

• risks relating to the Firm’s capital; and

• the cost and quantity of own funds / regulatory capital.

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Non-financial risks include:

• risks relating to the reputation of the Firm;

• risks relating to the conduct of the Firm’s staff;

• relating to the Firm’s relationship with its clients and investors in the funds it acts as portfolio manager to;

• risks around the achievement of the Firm’s wider strategy; and

• risks relating to compliance with the regulatory regime

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The Firm will apply ex ante and ex post adjustments to variable remuneration to ensure that remuneration awarded is fully aligned with the risks faced by the Firm.

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The criteria that the Firm will take into consideration when applying ex ante adjustments to variable remuneration include:

• the Firm’s economic profit;

• compliance breaches; and

• risk management breaches.

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Ex post risk adjustments can be operated either by reducing deferred (but not yet vested) amounts of compensation (malus) or by re-claiming ownership of upfront amounts or deferred amounts already vested (clawback) in relation to Material Risk Takers (MRTs).

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Malus and Clawback will apply to MRT variable remuneration in the following circumstances:

• where the MRT participated in or was responsible for conduct which resulted in significant losses to the Firm or relevant business unit;

• where the MRT failed to meet appropriate standards of fitness and propriety; and/or

• where the MRT participated in or was responsible for conduct which resulted in a material failure of risk management at the level of the Firm or relevant business unit.

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Guaranteed Variable Remuneration

In exceptional and justified circumstances, the Firm may award guaranteed variable compensation, granted as part of a contractual obligation. Guarantees, that are subject to appropriate level of approvals, are limited for MRTs to the first year of employment only. Additionally, the pay out of the guaranteed variable remuneration is also subject to the individual’s adherence to Firm’s policies and procedures and is subject to minimum conditions, such as that the employment is not terminated or notice is given and the employee is not subject to a disciplinary sanction. Guaranteed compensation arrangements to existing MRTs are prohibited.

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Severance Payments

In certain circumstances, severance payments may be made. Any payments related to early termination of an MRT employment contract will reflect performance achieved over time and will be designed in a way which does not reward failure or misconduct

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Quantitative Remuneration Disclosure

The below quantifies the remuneration paid to staff in the financial year 1 May 2023 to 31 March 2024.The remuneration disclosures presented relate to the shortened financial year 1 May 2023 to 31 March 2024, following a change in the firm’s year-end.

 

For these purposes, ‘staff’ is defined broadly, and includes, for example, employees of the Firm itself, partners, employees of other entities in the group, employees of joint service companies, and secondees.

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For the shortened financial year ending 31 March 2024, the Firm had 7 MRTs. The total remuneration awarded to Senior Managers and other MRTs during the period was £1,092,666.66. No guaranteed bonuses were awarded and no severance payments were made during this financial year.

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Perbak is committed to full compliance with regulatory requirements, including those set forth under MiFIDPRU 8, regarding the disclosure of remuneration for senior management and MRTs. In order to protect the privacy and confidentiality of individual remuneration details for this performance period, we have aggregated the remuneration figures for both our senior management team and MRTs. This approach ensures that we continue to meet the regulatory objectives of MiFIDPRU 8 while safeguarding sensitive personal compensation information. The decision to aggregate the figures was made in consideration of the fact that disclosing remuneration for only a small number of individuals could lead to the identification of individual compensation details, which may not be in line with our commitment to individual privacy. We remain fully dedicated to maintaining transparency, fair governance, and compliance with all relevant regulations while respecting the privacy of our key personnel.