Inducements Policy

 

Purpose of the policy

Fundrock Management Company (“FRMC”) as management company under Chapter 15 of the Law of 17 December 2010 as amended from time to time, and AIFM under Chapter 2 of the Law of 2013 as amended from time to time, shall ensure that itself and its delegates do not receive fees that would be undue to their activity or could jeopardise their independence (CSSF Regulation 10-04, article 32; Commission Delegated Regulation 231/2013, article 24).

Key Principles

FRMC shall not be regarded as acting honestly, fairly and in accordance with the best interests of the funds it manages or the investors in these funds if, in relation to the activities performed when carrying out its functions, its pays or is paid any fee or commission, or provides or is provided with any non-monetary benefit, other than the following:

a) a fee, commission or non-monetary benefit paid or provided to or by the fund, or a person on behalf of the fund;

b) a fee, commission or non-monetary benefit paid or provided to or by a third party or a person acting on behalf of a third party, where the following conditions are satisfied:

i) the existence, nature and amount of the fee, commission or benefit, or, where the amount cannot be ascertained, the method of calculating that amount must be clearly disclosed in a manner that is comprehensive, accurate and understandable, prior to the provision of the relevant service;

ii) the payment of the fee or commission, or the provision of the non-monetary benefit must be designed to enhance the quality of the relevant service and not impair compliance with the management company’s duty to act in the best interests of the fund;

c) proper fees which enable or are necessary for the provision of the relevant service, including custody costs, settlement and exchange fees, regulatory levies or legal fees, and which, by their nature, cannot give rise to conflicts with the management company’s duties to act honestly, fairly and professionally in accordance with the best interests of the fund.

The disclosure of the essential terms of the arrangements relating to the fee, commission or non-monetary benefit in summary form shall be considered as satisfactory for the purposes of point (i) of paragraph b), provided that FRMC commits to disclose further details at the request of the investor in the fund it manages and provided that it fulfils this commitment.

FRMC shall ensure full transparency over the fee structure that constitutes its benefits or of its delegates.

Responsibilities

Minimum principles to be respected:

– Any new monetary or non-monetary benefit paid or received by the Management Company or its delegates shall be identified and classified as proper fees or inducements;

– Management entities shall determine whether benefits identified as inducements comply with these criteria and terminate non-compliant agreements;

– Such classification and assessment must be sufficiently documented.

Other topics are closely related to inducement such as ‘gifts and entertainments’ and ‘conflicts of interest’ or, related to a same domain i.e. rules of conduct.

Senior management

Senior management shall ensure that adequate arrangements are in place both at management company level and at delegates’ level via its oversight processes to comply with this policy.

Compliance function

-Compliance will ensure that new rules concerning inducements are analysed and communicated to the teams in charge of delegate oversight;

-Compliance shall ensure that the Management Company fee structure abides by the same principle by giving its opinion on the pricing framework.

– Compliance shall ensure effectiveness of the controls by the FRMC oversight teams on the implementation of the relevant policy requirements by appointed delegates.

Oversight teams

FRMC team managers are responsible for defining procedures of oversight that fit legal requirements and compliance advice and for escalating any breach detected to the management committee, compliance function and the respective fund’s board.

As example, such measures might take the form of:

– A clear description of the fees and commissions received / paid by / to the management company and to the delegates;

– Specific questions in the DDR / ECR processes to ensure that appropriate disclosures are made through prospectus or alternative media (e.g. website);

– Compliance with the G&E policy and the proper fulfilling of the G&E log is a measure contributing to detect undue inducements.

A particular focus must be brought in relation to entities that fall under the definition of investment firms under the MiFID directive.

Impacted processes

Inducements mainly impact the processes of portfolio management, global distribution and fund administration. All those functions are usually delegated by FRMC.

– In consequence, FRMC, via oversight should ensure: o the existence and adequacy of the fee structures for all delegates o the controls over the fee and non-monetary benefits

– records management over the fees and non-monetary benefits (acceptable non-monetary benefits received, rationale for absence of conflicts of interest)

– a summary of disclosure if the fee arrangements is possible at the condition that details are provided to investors on their request.