1. Introduction

The European Capital Requirements Directive (“CRD”) introduced capital adequacy standards and an associated supervisory framework in the EU based on the Basel II rules. It has been implemented in the United Kingdom by Financial Conduct Authority (“FCA”) through FCA’s Prudential sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”). The framework consists of three ‘pillars’. These disclosures will be updated in due course to reflect the disclosures required under the introduction by the FCA of the Investment Firms Prudential Regime (“IFPR”) on 1 January 2022.

Pillar 1
The minimum capital required by a firm to meet credit, market and operational risk.

Pillar 2
A regular assessment of a firm’s regulatory capital, through a process known as the Internal Capital Adequacy Assessment Process (“ICAAP”), which determines whether the amount of internal capital is sufficient to cover all the risks to which the firm is exposed or whether additional capital needs to be held against the risks not covered in Pillar 1.

Pillar 3
This introduces public disclosure of qualitative and quantitative information and is aimed to encourage market discipline by providing market participants access to key information on a firm’s capital, risk exposures and risk management processes.

The rules in BIPRU 11 set out the Pillar 3 requirements. This document is designed to meet the Pillar 3 requirements. The rules permit TFG Asset Management UK LLP to omit any information that is considered immaterial, such that its omission would be unlikely to change or influence the decision of those relying on that information. In addition, TFG Asset Management UK LLP may omit required disclosures which it regards as proprietary or confidential. Proprietary information is that which may undermine TFG Asset Management UK LLP’s competitive position if it is shared. Information is considered to be confidential where there are obligations binding TFG Asset Management UK LLP to confidentiality with its customers, suppliers and counterparties.

No omissions have been made on the grounds that the relevant information is proprietary or confidential. Certain information has been omitted on the ground that it is immaterial (see the section headed “Items omitted from the Pillar 3 Disclosures”).

2. Scope and application

TFG Asset Management UK LLP is authorised and regulated by the FCA and as such is subject to minimum capital requirements, based on its categorization as a BIPRU firm.

TFG Asset Management UK LLP provides investment management services and other services to various affiliates (“Affiliates”).

TFG Asset Management UK LLP does not form part of a consolidation group for prudential purposes. TFG Asset Management UK LLP was authorised by the Financial Services Authority from 4 May 2011 and became authorised by the FCA on 1 April 2013.

3. Risk Management and the Risk Management Process

TFG Asset Management UK LLP is governed by an Executive Committee. The Risk Committee and Infrastructure Committee report to the Executive Committee and with their input the Executive Committee determines the business strategy and risk appetite for TFG Asset Management UK LLP. The Executive Committee includes TFG Asset Management UK LLP’s Chief Executive Officer (“CEO”).

For various reasons, the Executive Committee considers that from a regulatory capital perspective, TFG Asset Management UK LLP is a relatively low risk organization. For example, TFG Asset Management UK LLP holds no client assets, nor does it take proprietary positions.

Due to the small size of TFG Asset Management UK LLP and its relatively low risk profile, the Executive Committee considers that TFG Asset Management UK LLP does not warrant the need for a separate risk management function within TFG Asset Management UK LLP. Risk management is undertaken by the Risk Committee with the assistance of the CEO together with support from internal compliance, legal and operations teams. In addition, TFG Asset Management UK LLP retains external professional services firms for expert advice and consultation, as and where considered appropriate.

The Executive Committee, through formal and informal meetings, is actively involved in determining TFG Asset Management UK LLP’s business strategy and implementing processes to mitigate risks. TFG Asset Management UK LLP’s risk profile is assessed, as part of the ICAAP process, at least annually and more frequently as and when the need arises, at the discretion of the Executive Committee.

The Executive Committee also determines how the risks TFG Asset Management UK LLP faces may be mitigated and assesses the arrangements to manage those risks on an ongoing basis. The Executive Committee meets both formally and informally to discuss current projections for profitability, cash flow, regulatory capital management, business planning and risk management. The Executive Committee manages TFG Asset Management UK LLP’s business and identifies risks through a framework of policy and procedures taking account of relevant laws, standards, principles and rules (including FCA principles and rules) with the aim of operating a defined and transparent risk management framework. These policies and procedures are updated as required.

The Executive Committee has identified that credit, business and operational, and market risks are the main areas of risk to which TFG Asset Management UK LLP is exposed. The Executive Committee formally review the risks, controls and other risk mitigation arrangements and assesses their effectiveness. Where the Executive Committee identifies material risks, it considers the financial impact of these risks as part of TFG Asset Management UK LLP’s business planning and capital management and concludes whether the amount of regulatory capital is adequate.

4. Credit Risk

TFG Asset Management UK LLP’s clients include certain Affiliates to which it provides investment management services. This may result in a high client concentration risk. TFG Asset Management UK LLP is financially dependent upon its Affiliates. Their continued support is enshrined in their various agreements.

5. Business and Operational Risk

Operational risk is defined by the FCA as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. The Executive Committee has identified relevant risks and related mitigation and controls as part of its ICAAP review.

TFG Asset Management UK LLP has policies and procedures and ongoing operational and related compliance monitoring to help identify weaknesses and potential control failures which are required to be reported promptly when observed to the Executive Committee.

6. Market Risk

The Executive Committee believes that TFG Asset Management UK LLP’s market risk, which include the potential effects of a long term downturn in financial markets and foreign currency exchange risk, would not have a direct material effect on TFG Asset Management UK LLP as it does not take proprietary positions.

7. Regulatory Capital

TFG Asset Management UK LLP’s capital position as at the year ended 31 December 2021 was as follows: 

TFG Asset Management UK LLP is a relatively small firm with a simple operational infrastructure. TFG Asset Management UK LLP’s market risk is mainly limited to foreign exchange risk on its foreign currency cash balances. In addition, TFG Asset Management UK LLP is subject to credit risk on management and performance fees receivable from Affiliates. TFG Asset Management UK LLP follows the standardised approach to market risk and the simplified standard approach to credit risk. TFG Asset Management UK LLP is subject to the Fixed Overhead Requirement and is not required to calculate operational risk capital though it considers this as part of its process to identify the level of risk-based capital required.

TFG Asset Management UK LLP is a BIPRU firm for the purposes of the FCA’s capital requirements rules and, as such, its minimum capital requirement is the greatest of:  

•          The base capital requirement of €50,000;
•          The sum of its market and credit risk requirements; and
•          The 13 Week Fixed Overheads Requirement (“FOR”).

The Executive Committee considers that the available capital at 31 December 2021 more than adequately exceeds the minimum capital requirement of the FOR. 

TFG Asset Management UK LLP’s capital requirements for regulatory purposes as at the year ended 31 December 2021 is summarised as follows: 

As at 31 December 2021, TFG Asset Management UK LLP’s regulatory capital requirement is $4,421,000 and TFG Asset Management UK LLP’s regulatory capital of $8,515,000 exceeds the minimum capital requirement by $4,094,000. As such, TFG Asset Management UK LLP’s regulatory capital exceeds its regulatory capital requirement by 192.6%.

Items omitted from the Pillar 3 Disclosures 

TFG Asset Management UK LLP’s minimum capital requirement under Pillar 1 is driven by its FOR and not the sum of its credit risk and market risk requirements. TFG Asset Management UK LLP has, accordingly, concluded that the detailed disclosure requirements in relation to credit risk and market risk set out in BIPRU 11.5.4R(2)-(4), BIPRU 11.5.5-11.5.13R, and BIPRU 11.5.15R-11.5.16R may be excluded from the Pillar 3 Disclosures on the grounds that they are immaterial (in accordance with BIPRU 11.3.5R).

TFG Asset Management UK LLP does not engage in securitization activity and the securitization disclosures in BIPRU 11.5.17R are not applicable.  TFG Asset Management UK LLP has, therefore, concluded that it is permitted to exclude such disclosures from the Pillar 3 Disclosures on the grounds that they are immaterial (in accordance with BIPRU 11.3.5R).

TFG Asset Management UK LLP maintains a written remuneration policy designed to comply with the rules and guidance relating to the FCA’s Remuneration Code as it applies to BIPRU firms (the “Remuneration Rules”). TFG Asset Management UK LLP’s remuneration policy applies to its members and employees whose professional activities have a material impact on TFG Asset Management UK LLP’s risk profile (“Remuneration Code Staff”). TFG Asset Management UK LLP’s Executive Committee oversees TFG Asset Management UK LLP’s remuneration of Remuneration Code Staff.

The total compensation of Remuneration Code Staff is generally structured as a base salary or, in the case of LLP members, a fixed profit allocation and a year-end bonus or, in the case of LLP members, a discretionary profit allocation. The payment of any such year-end bonus or year-end distribution of profits is subject to various conditions and the amount may be zero under certain circumstances. In the case of other Remuneration Code Staff, the amount of any year-end bonus or year-end distribution of profits is entirely discretionary and is based on a number of considerations, including, among other things, the relevant member of staff’s experience and performance in the role, the overall performance of the investment strategy that the employee supports (if applicable), the profitability of the TFG Asset Management UK LLP group, and competitive pay practices and industry benchmarks. The relative weight accorded to each of these factors is also discretionary.

A portion of any year-end bonus or, as the case may be, year-end distribution of profits awarded to Remuneration Code Staff is subject to mandatory deferral. Deferred amounts may be invested in one or more of the private investment funds managed by the TFG Asset Management UK LLP group and/or shares in the Firm’s listed affiliate, Tetragon Financial Group Limited (“Tetragon”). Remuneration Code Staff who voluntarily elect to leave TFG Asset Management UK LLP (other than in connection with retirement) will typically forfeit all or significant portions of their unvested deferred compensation and thus have an economic incentive to remain with TFG Asset Management UK LLP.

TFG Asset Management UK LLP takes into account the specific nature of its own activities (including the nature of its revenues) in conducting any ex-ante risk adjustments to year-end bonuses. TFG Asset Management UK LLP has elected not to make ex-post risk adjustments to year-end bonuses, as permitted under the Remuneration Rules. TFG Asset Management UK LLP may, however, reduce prior year deferred compensation awards under certain circumstances.

All Remuneration Code Staff support TFG Asset Management UK LLP’s investment management activities (TFG Asset Management UK LLP’s only “business area” for purposes of the Remuneration Rules) and either are “senior managers” of TFG Asset Management UK LLP or perform a significant influence function. Certain of the Remuneration Code Staff’s remuneration are paid by TFG Asset Management UK LLP’s Affiliates.

The aggregate remuneration awarded to Remuneration Code Staff for purposes of BIPRU 11.5.18R(6) and BIPRU 11.5.18R(7) for the performance year ending 31 December 2021, including year-end bonus awards subject to the deferral policy described above, was approximately £18 million.

Under the FCA’s Conduct of Business Sourcebook (“COBS”), COBS 2.2.3R, TFG Asset Management UK LLP is required to include on its website a disclosure about the nature of its commitment to the UK Financial Reporting Council’s Stewardship Code (the “Code”) or, where it does not commit to the Code, its alternative investment strategy. The Code is a voluntary code and sets out a number of principles relating to engagement by investors with the companies or other assets in which they are invested.

TFG Asset Management UK LLP acts as the investment manager to certain private investment funds and other accounts (collectively, the “TFG Asset Management UK Funds”). TFG Asset Management UK LLP’s pursues a multi-strategy investment approach, investing in a variety of jurisdictions globally. While TFG Asset Management UK LLP generally supports the objectives that underlie the Code, it has chosen not to commit to the Code.  TFG Asset Management UK LLP’s approach in relation to engagement with issuers (and members of their management teams) in all of the jurisdictions in which the TFG Asset Management UK Funds invest is determined on a case-by-case basis. Consequently, TFG Asset Management UK LLP does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction. TFG Asset Management UK LLP will keep its approach towards the Code under periodic review and if that approach changes it will amend this disclosure accordingly.

Modern Slavery Statement 2022

*TFG Asset Management UK LLP includes Tetragon Financial Group Limited and its subsidiaries, including TFG Asset Management UK Limited, TFG UK RE Ltd, and TFG Asset Management UK LLP. TFG Asset Management UK LLP is authorised and regulated by the UK Financial Conduct Authority.

FCA COBS Rule 2.2B.3R requires every FCA authorised asset manager that invests in listed equities to:

(1) develop and publicly disclose on its website, a copy of its engagement policy which includes the content specified in the amended EU Shareholder Rights Directive (Directive 2007/36/EC); and

(2) publicly disclose on an annual basis how its engagement policy has been implemented, including a general description of its voting behaviour, an explanation of its most significant votes and details of its use of the services of proxy advisors, or, in either case, to publicly disclose a clear and reasoned explanation of why it has chosen not to comply with those requirements.

TFG Asset Management UK LLP has considered carefully whether it wishes to adopt an engagement policy and to make the disclosures described above and has, for the time being, decided not to do so. The reason that it has made that decision is that P TFG Asset Management UK LLP manages assets in accordance with a strategy that involves a wide variety of assets and timeframes. For the portion that is more focussed on equities, the relevant exposure to equities is often obtained through swap positions (particularly in relation to European issuers, which represents TFG Asset Management UK LLP’s main geographical focus). Where equities exposures are held via a swap position, the opportunities for shareholder engagement are more limited, when compared with physical shareholdings (for example, a swap holder is not entitled to vote at general meetings of the issuer). Therefore, while TFG Asset Management UK LLP supports the general principles of shareholder engagement, it does not at this time (for the reasons set out above) consider it appropriate to adopt an engagement policy or make the relevant public disclosures.  TFG Asset Management UK LLP will keep its position under review and will update this section of its website accordingly, if there is a change in its approach.