STEWARDSHIP CODE
Westray Capital Management LLP (“Westray” or “the Firm”) provides discretionary investment management services to a variety of clients, including institutional investors.
Under the Financial Conduct Authority’s (“FCA”) Conduct of Business Rules 2.2A.5, the Firm is required to make a public disclosure on its website in relation to the nature of its commitment to the Financial Reporting Council’s (“FRC”)
Stewardship Code.
The Code was first published by the FRC in July 2010 and it was updated in September 2012. Subsequently, the FRC published the new UK Stewardship Code 2020 (“2020 Code”), which took effect from 1 January 2020, and consists of 12 Principles for asset managers and asset owners, and six Principles for service providers.
The Code applies on a ‘comply or explain’ basis and is voluntary, aiming at enhancing the quality of engagement between institutional investors and companies, to help improve long-term returns to shareholders and provide for the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies that institutional investors
should aspire to.
The FRC defines ‘stewardship’ 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.’
The 2020 Code Principles are:
1. Signatories’ purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
2. Signatories’ governance,resources and incentives support stewardship.
3. Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first
4. Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.
5. Signatories review their policies, assure their processes and assess the effectiveness of their activities.
6. Signatories take account of client and beneficiary needs and communicate the activities and outcomes of
their stewardship and investment to them.
7. Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.
8. Signatories monitor and hold to account managers and/or service providers.
9. Signatories engage with issuers to maintain or enhance the value of assets.
10. Signatories, where necessary, participate in collaborative engagement to influence issuers.
11. Signatories, where necessary, escalate stewardship activities to influence issuers.
12. Signatories actively exercise their rights and responsibilities.
Whilst supporting the objectives underlying the Code and adhering to the
highest standards of corporate governance and due diligence in respect of its
investments the Firm, having considered the 2020 Code, believes that the Principles
are not applicable to its investment activities at this time. Should that change
in the future, the Firm will review its commitment to the Code and update this
disclosure accordingly. This disclosure will be reviewed at least annually. For
any questions regarding this disclosure please email compliance@westraycapital.com.
PILLAR 3 DISCLOSURES
2021 Pillar 3 Disclosures
Introduction
Westray Capital Management LLP (“Westray” or the Firm) is required by the FCA to disclose information relating to the capital it holds and each material category of risk it faces in order to assist users of its accounts and to encourage market discipline.
The Capital Requirements Directive (CRD) created a revised regulatory capital framework across Europe covering how much capital financial services firms must retain. In the United Kingdom, rules and guidance are provided in the General Prudential Sourcebook (GENPRU) for Banks, Building Societies and Investments Firms (BIPRU).
The FCA framework consists of three "Pillars":
· Pillar 1 sets out the minimum capital requirements that companies need to retain to meet their credit, market and operational risk;
· Pillar 2 requires companies to assess whether their Pillar 1 capital is adequate to meet their risks and is subject to annual review by the FCA;
· Pillar 3 requires companies to develop a set of disclosures which will allow market participants to assess key information about its underlying risks, risk management controls and capital position. These disclosures are seen as complimentary to Pillar 1 and Pillar 2.
Rule 11 of BIPRU sets out the provisions for Pillar 3 disclosure. The rules provide that companies may omit one or more of the required disclosures if such omission is regarded as immaterial. Information is considered material if its omission or misstatement could change or influence the decision of a user relying on the information. In addition, companies may also omit one or more of the required disclosures where such information is regarded as proprietary or confidential. The Firm believes that the disclosure of this document meets its obligation with respect to Pillar 3.
Firm Overview
Westray is incorporated in the UK and is authorised and regulated by the FCA as a Full Scope Alternative Investment Fund Manager and is categorized by the FCA for prudential regulatory purposes both as a Collective Portfolio Management Firm (“CPMI”) and a BIPRU firm.
The Governing Body of Westray has the daily management and oversight responsibility. It generally meets quarterly and is composed of:
§ Selvan Masilamany
§ Neil Cowhig
§ Richard Hindley
§ Efstathios Kaparis
§ Tomasz Kieszkowski
The Governing Body is responsible for the entire process of risk management, as well as forming its own opinion on the effectiveness of the process. In addition, the Board decides Westray’s risk appetite or tolerance for risk and ensures that Westray has implemented an effective, ongoing process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. Senior Management is accountable to the Governing Body for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of Westray.
Capital Resources and Requirements
Capital Resources
Pillar 1
Westray holds regulatory capital resources of £245,262 comprised solely of core Tier 1 capital of Partners Capital.
The Firm has calculated its BIPRU capital resources in accordance with GENPRU 2.2:
The Firm is required as a CPMI firm to maintain ‘own funds’ which equal or exceed the higher of:
· Funds under management requirement of €125,000 plus 0.02% of the AIF AUM exceeding €250,000,000;
· The sum of its market and credit risk requirements; or
· Own funds based on its Fixed Overhead Requirement (which is essentially 25% of the Firm’s operating expenses less certain variable costs);
· PLUS PII Capital requirement based on the excess for professional liability risk.
As at 31 March 2021, the Firm's Pillar 1 capital requirement was £128,010
Satisfaction of Capital Requirements
Pillar 2
The Firm has adopted the “Structured” approach to the calculation of its Pillar 2 Minimum Capital Requirement as outlined in the Committee of European Banking Supervisors Paper, 27 March 2006 which takes the higher of Pillar 1 and 2 as the ICAAP capital requirement. It has assessed Business Risks by modeling the effect on its capital planning forecasts and assessed Operational Risk by considering if Pillar 2 capital is required taking into account the adequacy of its mitigation.
Since the Firm's Internal Capital Adequacy Assessment Process (ICAAP or Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed above are considered adequate to continue to finance the Firm over the next year. No additional capital injections are considered necessary and the Firm expects to continue to be profitable.
Risk Management
The Firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by the Firm's members.
As risks are identified within the business, appropriate controls are put in place to mitigate these and compliance with them is monitored on a regular basis. The frequency of monitoring in respect of each risk area is determined by the significance of the risk. The Firm does not intend to take any risks with its own capital and ensures that risk taken within the portfolios that it provides advice to is closely monitored. The results of the compliance monitoring performed is reported to the partners by the Compliance Officer.
Operational Risk
The Firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.
The Firm has identified a number of key operational risks. These relate to disruption of the office facilities, system failures, trade failures and failure of third party service providers. Appropriate policies are in place to mitigate against risks, including appropriate insurance policies and business continuity plans.
Credit Risk
The main credit risk to which the Firm is exposed is in respect to the failure of its debtors to meet their contractual obligations. The majority of the Firm's receivable is related to investment management activities. The Firm believes its credit risk exposure is limited since the Firm’s revenue is ultimately related to management fees received from funds. These management fees are drawn throughout the year from the funds managed. Other credit exposures include bank deposits and office rental deposits.
The Firm undertakes periodic impairment reviews of its receivables. All amounts due to the Firm are current and none have been overdue during the year. As such, due to the low risk of non-payment from its counterparties, management is of the opinion that no provision is necessary. A financial asset is overdue when the counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.
The Firm has adopted the standardised approach to credit risk, and therefore follows the provision within BIPRU 3 standardised credit risk of the FCA handbook. The Firm applies a credit risk capital component of 8% to its non-trading book risk weighted exposure. As the Firm does not make use of an external credit rating agency, it is obligated to use a risk weight of 100% to all non-trading book credit exposures, except cash and cash equivalents which are held by investment grade firms and currently attract a risk weighting of 20%.
The table below sets forth the Firm's credit exposures and corresponding capital resource requirements as at the date of its ICAAP assessment:
Capital
£245,262
Funds under management requirement (a)
£108,010
Fixed overheads requirement(b)
£21,453
Credit risk + Market Risk (c)
£16,264
PII defined excess (d)
£20,000
Total Capital requirements (a) or (b) or (c) PLUS (d)
£128,010
Surplus
£117,251
Solo Basis
Credit Exposure
Risk Weighted Exposure
National Governments
£0
£0
Tangible fixed assets
£0
£0
Due from affiliates – within 3 months
£0
£0
Due from affiliates – after 3 months
£0
£0
Cash at bank
£389,340
£77,868
Prepayments
£0
£0
Other
£125,426
£125,426
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Total
£514,766
£203,294
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Credit Risk Capital Component (8% of risk weighted exposure)
£16,263.52
Market Risk
Since the Firm holds no trading book positions on its own account, and all bank accounts are in GBP and all advisory fee income is in GBP, the Firm’s exposure to foreign currency risk is not significant. Since the settlement of debtor balances take place without undue delay, the timing of the amount becoming payable and subsequently being paid is such that it is not considered to present a material risk to the Firm. The Firm has excluded Market risk on the basis that it is not a material risk to the Firm.
Remuneration Code
The Firm has adopted a remuneration policy and procedures that comply with the requirements of chapter C of the FCA's Senior Management Arrangements, Systems and Controls Sourcebook (SYSC), as interpreted in accordance with the FCA's guidance publication entitled "General Guidance on Proportionality: The Remuneration Code (SYSC 19C) & Pillar 3 Disclosures on Remuneration (BIPRU 11)" and subsequent items of guidance issued by the FCA, including its document entitled "Frequently Asked Questions on the Remuneration Code".
As a BIPRU limited license firm, the Firm falls within proportionality level 3. The Firm has concluded, on the basis of its size and the nature, scale and complexity of its legal structure and business that it does not need to appoint a remuneration committee. Instead, the Governing Body sets, and oversees compliance with, the Firm's remuneration policy including reviewing the terms of the policy at least annually.
As at 31 March 2021, the Firm currently sets the variable remuneration of its partners and staff in a manner which takes into account partner and firm performance, by reference to individual performance, performance of the Firm. As permitted for firms falling within proportionality level 3, the Firm takes into account the specific nature of its own activities (including the fee based nature of its revenues) in conducting any ex-ante risk adjustments to awards of variable remuneration and, given the nature of its business, has disapplied the requirement under the Remuneration Code to make ex-post risk adjustments.
PRIVACY POLICY
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SHARE HOLDER RIGHTS DIRECTIVE II (“SRD II”)
Shareholders
Rights Directive II (‘SRD II’ - 2017/828) Statement
Introduction
Westray Capital Management LLP
(“Westray” or “the Firm”) is a full-scope UK AIFM. Westray manages a long/short European
equity strategy based on rigorous, fundamental analysis. The strategy consists
of a concentrated portfolio of stocks in which Westray has a high conviction
view that the stock is mispriced given the prospects for the company and the
sector in which it operates.
SRD II
Article 3g of SRD II, which is
summarised in the FCA Handbook under COBS 2.2B, requires a firm such as Westray
to either:
develop and disclose an engagement policy describing how the firm integrates shareholder engagement in its investment strategy; or
disclose why the firm has chosen not to comply with those requirements.
Such an engagement policy requires a firm to describe how it:
integrates shareholder engagement in its investment strategy:
monitors investee companies on relevant matters, including:
strategy
financial and non-financial performance and risK
capital structure
social and environmental impact and corporate
governance
conducts dialogues with investee companies;
exercises voting rights and other rights attached to shares;
cooperates
with other shareholders;communicates
with relevant stakeholders of the investee companies; andmanages actual and potential conflicts of interests in relation to the firm’s
engagement.
The above engagement policy is limited to the extent that a firm invests on behalf of investors in shares
traded on a regulated market (or on third country markets that meet comparable
requirements and where the shares dealt in are of a quality comparable to those
in a regulated market in the UK).
Westray’s approach to engagement:
The firm’s investment strategy is such that
whilst the firm may invest in shares traded on a regulated market (or comparable
market), the resultant holdings are of an insignificant size and voting power
to the extent that the firm does not actively engage with investee companies.
While Westray generally supports the objectives that underlie SRD II, for the above reason the firm has chosen not to produce
an engagement policy at this time
RTS 28 Disclosure:
During the period May 2020- April 2021, we confirm that there are no material close links, common ownership or conflicts of interest between us and the execution venues / brokers used by the Firm. Execution venues / brokers are paid on a pre-agreed cost per transaction. We receive/do not receive a discount on these services. We may on occasion receive short term market colour from our execution providers. All our clients are categorised as professional clients under Article 4 (1)(11) of Directive 2004/39/EC. The Firm may use broker Transaction Cost Analysis (TCA) reports and internal analysis to monitor the quality of execution against our best execution criteria. We conduct regular reviews of our chosen execution venues / brokers against our best execution policy, and may at our discretion, remove those which we believe are no longer offering us best execution.