Remuneration Policy FundRock Distribution

Introduction

Investment firms are required to define a remuneration policy encouraging responsible business conduct that is also consistent with and promotes sound and effective risk management and prevents risk taking inconsistent with their clients’ interest, their business strategy, their objectives, values and long-term interests.

These principles are laid down by the Directive 2014/65/EU (MiFID II) and its Commission Delegated Regulation 2017/565, the Directive 2019/2034/EU, and the CSSF Circular 10/437.

The present remuneration policy (the “Policy”) applies to all employees within FundRock Distribution, and any branch representative office and legal entity that is under its control, and is gender-neutral.

Purpose and Aims

FundRock Distribution S.A. (“FRD” or the “Company”) is an investment firm authorised under Chapter 2 of the amended Law of 5 April 1993. In its current operating model, the Board of Directors of the Company (the “Board” or the “Supervisory Function) should ensure that the Policy is consistent with and promotes sound and effective risk management.

The Policy should:

  • Be in line with business strategy, objectives, values and interests of FRD and the funds that it distributes and of the potential investors in such funds, in line with FRD’s role as an investment firm, help to prevent excessive risk taking
  • Enable FDR to align the interests of the funds distributed and their potential investors with those of the identified Staff that promotes the vehicles, raises assets for them, and to achieve and maintain a sound financial situation

This Policy is also based on the Company’s assessment of the principle of proportionality in terms remuneration requirements provided by MiFID II.

The Policy covers the remuneration of Identified Staff: those categories of employees whose professional activities have a material impact on the risk profile of an investment firm or of the assets that it manages.

The Supervisory Function is responsible for approving and maintaining the Policy, and overseeing its implementation. The Policy will not be controlled by any executive members of the Supervisory Function. The Board will approve any subsequent material exemptions or changes to the Policy and carefully consider and monitor their effects, and will review the Policy at least annually.

Scope of activities of FRD

The Company is a MiFID II entity subject to the supervision of the CSSF and authorized as (i) investment adviser (within the meaning of article 24 of the Law of 5 April 1993 on the financial sector) and as (ii) distributor of shares/units of undertakings for collective investment without making or accepting payments, as provided for in article 24 of the 1193 Law.

The Company can also provide transmission of orders services in accordance with the 1993 Law, even if it is not currently performed.

Until further notice, as an investment firm, FRD does not have any portfolio management activities and does not process any transactions connected to the funds it distributes.

Its income being almost entirely derived from fee income arising from the provision of services, FRD does not hold any financial investments (or hold any complex financial or derivative instruments) in its own name or entered into on its own behalf.

However, it should be noted that the employees identified as risk-takers under MiFID II are remunerated based on the performance of the vehicles they are promoting.

The sub-distributors to whom FRD has delegated distribution activities fall under the scope of the MiFID II Directive and its Delegated Regulation, the Directive 2019/2034/UE, the CSSF circular 10/437. Compliance with these requirements is verified as part of the Company’s program of Due Diligence and External Compliance Reviews of its delegates.

Identified Staff

Pursuant to articles 3 and 4 of the Regulatory Technical standards (specifying appropriate criteria to identify categories of staff whose professional activities have a material impact on the risk profile of an investment firm or of the assets that it manages) adopted by the European Commission on August 21, 2021, the following FRD categories of employees are considered as Identified Staff:

Board Members

The Board of Directors is composed of 3 non-executive Directors (1 independent Director and Chairman of the Board, 1 Director representing the Apex Group, 1 Director representing the FundRock Group), 2 executive Directors. Board Members do not receive remuneration paid by FRD for their function as Board Members.

Senior and executive management

  • Executive Directors and Conducting Officers (2)

As of August 2022, the Company employs 9 individuals, 2 of whom would fall under the definition of Identified Staff for the scope of the Policy.

All processes and procedures must meet the requirements of current employment legislation, Governance and diversity, equality & inclusion requirements. All processes and procedures will be equitable, fair and auditable. Employees will be treated with courtesy and respect throughout all processes.

All employees involved in the processes and procedures covered by this policy must consider whether their family and other personal relationships create any actual or potential conflicts. For further information please refer to the Conflict of Interest Policy.

Internal audit is excluded since this function is currently outsourced.

Moreover, given the fact that Business Development staff are not able to take decisions on their own to approve new business and cross-selling opportunities (at least two members of the FRD New Client and Pricing Committee are needed and at least one Director), and that they stay controlled , or under tight surveillance to guarantee they are not conflicted, the Company considers that its Sales’ activities are limited by upper hierarchy level and prevents excessive and imprudent risk taking according to the MiFID II Directive.

Proportionality Principle

Pursuant to article 30 of Directive 2019/2034/EU, investment firms must establish and apply a remuneration policy that is proportionate to their size, internal organization and nature as well as the scope and complexity of their activities. The MiFID II legal framework classifies investment firms in three categories depending on their activities, their systemic importance, their size and interconnections and provides, for each category, specific requirements in terms of remuneration and governance, according to a proportionality principle:

  • Class 1: investment firms considered to be of systemic importance similar to credit institutions, subject to CRD-CRR regulations;
  • Class 2: investment firms of intermediate size which do not belong to categories 1 and 3, subject to remuneration requirements detailed in article 32(4) of Directive 2019/2034/EU, which distinguishes significant investment firms and non-significant investment firms, providing an exemption from certain requirements for the latter;
  • Class 3: small and “non-interconnected” investment firms, not subject to regulations in terms of remuneration.

Given its modest size, and in accordance with article 12 of the EU Regulation 2019/2033, FRD has been classified as class 3 investment firm by the Luxembourg-based regulator.

As a consequence, and as long as the Company is considered as a Class 3 investment firm, FRD will not be subject to remuneration rules for its identified staff concerning deferrals and payment in financial instruments, and the provisions concerning the Remuneration Committee respectively provided by articles 32(1,j-l) and 33(1) of Directive 2019/2034/EU.

Basic Remuneration Principles

The Policy is consistent with and promotes sound and effective risk management and does prevent risk-taking including sustainability risks which is inconsistent with the risk profiles, management regulations or instruments of incorporation of the funds promoted by FRD. The Policy is in line with the business strategy, objectives, values and interests of the Company.

The remuneration principles of the present policy apply to any benefit of any type paid by FRD, to any amount paid directly by its clients, including commissions, and to any transfer of units or shares of the UCITS, made for the benefit of Identified Staff.

Staff members engaged in control functions are compensated in accordance with the achievement of the objectives linked to their functions, independently of the performance of the business areas they control. Objectives are set up at the start of the year.

Performance and achievement of objectives are assessed by formal annual and semi-annual evaluation, the results of which will contribute to the determination of the remuneration and the level of any discretionary performance bonus.

The employees, at all levels, will be assessed on the following key focus areas which criteria is based on qualitative and quantitative objectives:

  • Values: how the Apex values including diversity and inclusion been demonstrated this review period?
  • Client and Stakeholder Focus: technical capability and quality service
  • Business and Financial Focus: growth, commerciality, operations and sustainability
  • People Focus: relationship, leadership and management
  • Career Development: what are your career development and expectation for the coming year?

Where remuneration is performance-related, the total amount of remuneration is based on a combination of the assessment of the performance of the individual and the overall results of FRD, and when assessing individual performance, financial as well as non-financial criteria are taken into account. The assessment of performance is set in a multi-year framework appropriate to the lifecycle of FRD.

Staff are required to refrain from using personal hedging strategies or remuneration and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements.

Fixed and variable components of total remuneration, as described in more detail in the following sections, are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component.

Payments related to the early termination of a contract reflect performance achieved over time and are designed in a way that does not reward failure.

Fixed Remuneration

Remuneration paid to the Staff including Identified Staff shall be in the form of an annual salary and related benefits. The fixed remuneration will take into consideration the diplomas, the background, the level of Expertise and the salary benchmark for each individual.

Benefits include (see details in Annex 1):

  • lunch vouchers
  • pension scheme
  • corporate credit card
  • car allowance

The Fixed Remuneration is annually revised

Variable Remuneration

Except the risk takers, all Staff, including Identified Staff, may be eligible to receive variable remuneration in the form of a discretionary bonus (the “Discretionary Bonus”), under the terms of their employment contract. Guaranteed variable remuneration is exceptional and awarded only in the context of hiring new staff and only for the first year. The Discretionary Bonus is awarded on the basis of the performance of all staff in respect of performance targets and goals established during the annual performance evaluation process. Each individual will be evaluated on the performance realised and objectives achieved during the end of year review by the Line Manager.

For the Business Development Team (Sales personnel), the commission fee paid for any new business wins or assets raised (Sales Commission), will be subject to deferral payment.

An exceptional bonus to reward the exceptional performance of employees can be allocated under certain circumstances. The assessment of exceptional performance will be accordingly documented (e.g. explanations in the award letter).

The measurement of performance used to calculate components or pools of components for the Discretionary Bonus includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks.

The Discretionary Bonus is paid only if it is sustainable according to the financial situation of the Company as a whole, and is justified according to the performance of FRD and the individual concerned.

Any Discretionary Bonus awards which have been deferred will be forfeited by the recipient should the employee concerned resign prior to the payment date of the Discretionary Bonus awarded.

In order to ensure the effectiveness of risk alignment, staff members should not buy an insurance contract which compensates them in the event of a downward adjustment in remuneration. As a general rule, however, this would not prohibit insurance designed to cover personal payments such as healthcare and mortgage instalments (provided that the mortgage coverage concerns health-related circumstances that would render the staff member unable to work in an equivalent position), although each case should be judged on its merits.

The requirement not to use personal hedging strategies or insurance to undermine the risk alignment effects embedded in their remuneration arrangements should apply to deferred and retained variable remuneration. Management companies should maintain effective arrangements to ensure that staff members comply with this requirement.

Pursuant to the Commission Delegated Regulation 2017/565, as an investment firm, FRD must always maintain a balance between the variable and the fixed remuneration so that the remuneration structure of the concerned employees does not favour the Company, to the detriment of the clients’ interests.

Sales Bonus

In terms of commission, two streams should be distinguished: commissions on Apex related business (as part of the Apex Group) where the Company’s Sales Team would collaborate with their counterpart in the Apex Group, and those on FRD’s direct distribution service.

The sales bonuses are paid over 2 years of activity of the client.

Commission is payable quarterly based on revenue invoiced and paid to the Company.

Long-term incentive plan

FRD reserves the right to provide its Senior Management with a long-term incentive plan (LTIP) based on options/ shares/ certificates, as it would be detailed by the Apex Group.

Ex post incorporation of risk

FRD reserves the rights to reassess or withhold the amount of variable remuneration allocated (“malus”) to its Identified Staff who cannot benefit from the individual proportionality, in the following conditions:

  • Evidence of misbehaviour or serious error by the staff member;
  • Whether the Fund promoted and/or the Company and/or the business unit subsequently suffers a significant downturn in its financial performance;

The Company also reserves the rights to demand full or partial repayment from the individual (“clawback”) to its Identified Staff who cannot benefit from the individual proportionality, in the following conditions:

  • Fraudulent conduct of staff member;
  • Misleading information by a staff member;
  • Breach of MiFID II requirements and of CSSF Circular 10/437.

Remuneration of Executive and Non-Executive Directors

Executive Directors of FRD as employees of the Company do not receive any additional remuneration for serving as a Board member of FRD or any other boards within the Group.

Representatives of the Shareholders of FRD do not receive remuneration for serving as a Board member of the Company.

Non-Executive Directors will be paid fixed fees on an annual basis in line with the written agreement between themselves and the Company.

Board of Directors

Given its size, the low complexity of its activity and internal organisation, the Company’s Supervisory body did not deem relevant to create a dedicated Remuneration Committee.

FRD’s Board is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of FRD and the funds concerned and which are to be taken by the Executive Directors. Therefore the remuneration of the senior officers in the risk management and compliance functions as well as the remuneration of the Senior Management, Identified Staff and Sales is overseen by the Supervisory body.

The Remuneration of FRD’s staff may be on the agenda of a Board meeting as soon as needed.

Reporting

The Company’s senior manager responsible for the HR function will formally report to the Board of FRD in respect of the adherence to the Policy and any Discretionary Bonus awards which are in excess of 10% of the annual salary of any Identified Staff concerned.

Roles of Control Functions

Investment firms should ensure that control functions have an active role in the design, ongoing oversight and review of the remuneration policies for other business areas.

Working closely with the Board of Directors and management body, the control functions should assist in determining the overall remuneration strategy applicable to the investment firm, having regard to the promotion of effective risk management.

The Company’s Chief Compliance Officer analyses how the remuneration structure affects FRD’s compliance with legislations, regulations and internal policies.

The internal Audit function carries out, at least annually, an independent audit of the designed implementation and effect of the Policy.

In case of sub-distribution

FRD, having delegated the distribution of certain funds promoted to sub-distributors, will ensure through the Compliance function that:

  • Their remuneration policies take into account the requirements posed by MiFID II requirements and CSSF Circular 10/437; or
  • Appropriate contractual arrangements are in place with the Delegates to ensure that there is no circumvention of the remuneration rules applicable to FRD.

Internal Disclosure

The remuneration policy is accessible to all staff members of FRD upon request. The Company ensures that the information regarding the remuneration policy disclosed internally reveals at least the details which are disclosed externally.

The appraisal process should be properly documented and should be transparent to the member of staff concerned.

External Disclosures

Relevant extract of the policy is made available on the website of the FundRock Group.

Accounting provisions established to cover the potential cost of any discretionary bonus which may be awarded will be disclosed in the notes to the audited financial statements of the Company, in line with applicable Luxembourg accounting practices and laws.

Review and update

The Policy is subject to annual review by the Compliance Officer and the update is performed by HR department of FRD and is presented for review to and approval by the Board of the Company.

The periodic review of the implementation of the remuneration Policy may be, partially or totally, externally commissioned, where appropriate. The Board of Directors remains responsible for the review of the Remuneration Policy and for ensuring that the results of the review are followed up. Moreover, the relevant control functions should be closely involved.

Conflict of Interest

The policy has been designed and implemented in a way to avoid any potential conflict of interest. Should nevertheless any potential arise, the implemented Conflict of Interest Policy of FRD should apply and such potential conflict should be reported to Compliance function in order to be logged and properly addressed and mitigated as foreseen in the policy.

SFDR Requirements

As per article 5 of SFDR, Financial Advisers including investment firms are required to include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks and shall publish that information on their website.

As outlined previously, FRD’s employees who are identified as risk-takers under MiFID II are remunerated (sales bonus) based on the performance of the funds marketed.

Based on the limited impact of bonuses of employees identified as risk takers on FRD’s risk profile of the Funds and the Company’s business model mainly consisting in distributing funds of existing clients of the Apex Group, the Company’s assessment is that there is no risk of misalignment with the sustainability risks associated with the distribution decision making process of the Company in respect of the Funds.

As mentioned above, FRD may delegate some parts of its distribution activity to an approved sub-distributor. Even within this configuration, FRD’s income is almost entirely derived from fee income arising from the provision of services. Employees identified as risk-takers have no direct bearing on the performance capabilities of the Funds and the performance of the Funds does not impact the remuneration of those employees.

Where the delegation takes place, the Company is ensuring that the sub-distributor adopts remuneration policies and procedures which are consistent with the integration of sustainability risks, when sustainability risks are integrated into the investment decision making process. FRD will perform periodic oversight and seek confirmations from each sub-distributor that these policies are being complied with and the remuneration structures are not encouraging excessive risk-taking with respect to sustainability.

As mentioned above and until further notice, the Company does not provide portfolio management services.

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