Remuneration Policy

Introduction

The Remuneration Policy is to ensure that all procedures and benefits pertaining to this policy are carried out in a fair, equitable and transparent way that will attract and maintain a workforce that is representative of the community of which it is part.

Purpose and Aims

On 1 February 2010, the CSSF (Commission de Surveillance du Secteur Financier) published Circular 10/437 on guidelines concerning the remuneration policies in the financial sector (the “Circular”). The Circular was addressed to all entities subject to the CSSF’s prudential supervision. The purpose of this Circular was to implement Recommendation 2009/384/EC of the EU Commission of 30 April 2009 on remuneration policies in the financial services sector (the “Recommendation”).

FundRock Management Company S.A. (“FRMC”), as Management Company authorised pursuant to Chapter 15 of the amended Luxembourg Law of 17 December 2010 relating to undertakings for collective investment (“UCI”) as updated by the Law of 10 May 2016 (“UCITS V Law”) transposing EU Directive 2009/65/EC as amended by EU Directive 2014/91/EU (“UCITS V Directive”) – and as Alternative Investment Fund Manager (“AIFM”) pursuant to Chapter 2 of the amended Luxembourg Law of 12 July 2013 on alternative investment fund managers (“AIFM Law”) transposing EU Directive 2011/61/EU (“AIFMD”), is required to establish, implement and maintain an overall sound remuneration policy (the “Policy”).

The present remuneration policy (“Policy”) encourages the alignment of the risks taken by its staff with those of the funds (AIFs and UCITS – FCP and SICAV) that it manages, the investors of such funds and the management company itself. In particular, the remuneration policy should duly take into consideration the need to align risks in terms of risk management and exposure to risk.

This Policy is also based on FRMC’s assessment of the principles and the proportionality principles outlined in the Final Report of the ESMA Guidelines on sound remuneration policies under the UCITS V Directive (ESMA 2016/575) and AIFMD (ESMA 2016/579), as amended from time to time (“ESMA Guidelines”), in relation to quantitative and qualitative assessment criteria (i.e. company size, internal organisation and the nature and complexity of the activities). Further, consideration has been given to the requirements as outlined in Regulation (EU) 2019/2088 on sustainability – related disclosures in the financial sector (the “SFDR Requirements”).

The Policy applies to all employees within FRMC and any branch representative office and legal entity that is under its control.

The Policy covers the remuneration of Identified Staff: those categories of staff, including senior and executive management risk takers, control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the risk profiles of FRMC or, in its function as AIFM, of the AIFs it manages or, in its function as Management Company, of UCITS under management.

The Board of Directors of FRMC (the “Board” or the “Supervisory Function”) is responsible for approving and maintaining the Policy of FRMC, 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 FRMC

FRMC is a Management Company authorised under Chapter 15 of the amended Law of 17 December 2010, and an AIFM under Chapter 2 of the amended Law of 12 July 2013. In its current operating model, the Supervisory Function should ensure that FRMC’s 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 FRMC and the funds that it manages and of the investors in such funds, in line with FRMC’s role as a ManCo, help the IM to prevent excessive risk taking as compared to their investments policy for the UCITS and AIFs
  • Enable FRMC to align the interests of the UCITS and AIFs and their investors with those of the identified Staff that managers such UCITS and AIFs, and to achieve and maintain a sound financial situation

For most of their Funds, FRMC delegates the portfolio management activities to appointed delegates and does not process any transactions connected to investment funds for whom it acts as Management Company or AIFM or to any other entity or on its own behalf. Its income is almost entirely derived from fee income arising from the provision of services. FRMC 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. As such, it should be noted that FundRock’s employees who are identified as risk-takers under UCITS V and AIFMD are not remunerated based on the performance of the funds under management.

The investment managers to whom FRMC has delegated investment management activities fall under the scope of the Recommendation and the AIFM Law / UCITS V Law or under the Law of July 2015 (i.e. the CRD IV Luxembourg Law) for those who work in a bank. Compliance with these requirements is verified as part of the FRMC’s program of Due Diligence and External Compliance Reviews of its delegates (including investment managers).

Identified Staff

The following FRMC categories of staff are considered as Identified Staff, after taking into account the clear distinction between operating and control functions, the skills and independence requirements of members of the management body, the role performed by internal committees, including the remuneration committee (“Remuneration Committee”), the safeguards for preventing

Board Members

The Board of Directors is composed of 5 executive Directors, 2 non-executive Directors (Independent Directors), and 1 representative (shareholder). Board Members do not receive variable remuneration paid by FRMC for their function as Board Members.

Senior and executive management

  • Executive Directors (3)
  • Conducting Officers (5 including 1 Executive Directors)
  • Senior Manager of branch
  • Senior Manager of Asian market (1)
  • Finance Director (1)
  • Control functions:
  • Compliance Officer (1)
  • Data Protection Office (1)
  • Risk Manager (1)
  • MLRO Manager (1)

FRMC (as of January 2021)  employs 140  individuals, 15 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 Sales staff are not able to take decisions on their own to approve new business and cross-selling opportunities (at least two members of the FRMC Pricing Committee are needed and at least one Director), FRMC considers that its Sales’ activities are limited by upper hierarchy level and do not have an impact on the risk profile of the management company according to UCITS V Law and AIFM Law.

Proportionality Principle

The UCITS V Directive and the ESMA Guidelines envisage that the provisions should operate in such a way as to enable a management company to take a proportionate approach to compliance with a remuneration principle.

In view of the size of the assets underpinning the clients to whom it provides services, as well as the nature of the investment policies and strategies, the complexity and size of its organization, reflected by an excess of 100 employees, FRMC has decided not to apply the proportionality principle in light of its own characteristics as Company. Except in the cases described in 7.4. and 7.5.

Taking into account, amongst others, the cap on variable remuneration described in point 7.4. of the Policy, FRMC is in the opinion that up to this cap it is not exposed to higher risk at the level of individuals, and that the proportionality principle (that leads to the disapplication of some regulatory requirements) may be applied at the level of its identified staff:

  • Identified Staff whose total variable remuneration is lower than 200 K€ or lower than 150% over their fixed remuneration will receive their variable remuneration in cash, in one payment, in March of year N+1;
  • Identified Staff whose total variable remuneration is equal or higher than 200 K€ and equal or higher than 150% over their fixed remuneration will receive their variable remuneration with respect to the following applicable regulatory principles:
  • At least 50% of the variable components consists in instruments, unless the management of UCITS/AIFs accounts for less than 50% of the total portfolio managed by the management company, in which case the minimum of 50% does not apply. This applies equally to both the non-deferred and the deferred parts of the variable remuneration;
  • The instruments referred to in the previous point are subject to an appropriate retention policy designed to align incentives with the interest of the management company and the UCITS/AIFs it manages and the investors of the UCITS/AIFs;
  • 40% of the variable component is deferred with a minimum deferral period of 3 to 5 years unless the lifecycle of the UCITS/AIFs concerned is shorter. Remuneration payable under deferral arrangements vests no faster than on a pro-rata basis. In the case of a particularly high amount, at least 60% of the amount is deferred.

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 managed by FRMC. The Policy is in line with the business strategy, objectives, values and interests of FRMC.

The remuneration principles of the present policy apply to any benefit of any type paid by FRMC to any amount paid directly by the UCITS itself, including performance fees, 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 (see Annex 1). 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 (as covered in section 7.1).

The employees, at all levels, will be assessed on the following key focus areas which criteria is based on qualitative and quantitative objectives (more details in Annex 1):

  • Great Financial & Business Result
  • Outstanding Client Focus
  • The Best People – Winning Teams
  • Robust Risk & Control
  • Behaviours & Living Values

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 FRMC, 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 FRMC.

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 3):

  • lunch vouchers
  • pension scheme
  • corporate credit card
  • car allowance
  • professional mobile phone
  • professional laptop
  • professional Ipad.

The Fixed Remuneration is annually revised

Variable Remuneration

Discretionary Bonus

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. A rating scale of between 1 and 5 will be attributed (see Annex 2), which will determine the level of bonus.

A meeting of the Board will then take place in order to confirm and validate the rating scores and determine the final amount of the bonus.

The Remuneration Committee will determine and oversee the total remuneration of the Identified Staff (see point 10: Remuneration Committee). The principle will remain exactly the same as for other staff, with the exception that the Remuneration Committee, and not the Board, will validate the final ratings and bonuses. The decisions on ratings and bonuses will be ratified by the Board of Directors.

For Sales personnel, the commission fee paid for any new business wins (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 (see Annex 1) 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 FRMC as a whole, and is justified according to the performance of FRMC and the individual concerned.

The Discretionary Bonus is deferred in accordance with section 7.5 of this Policy and may be reduced in the event that FRMC is loss-making at time of the Discretionary Bonus (malus). 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.

Variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the requirements laid down within the UCITS V Law and the AIFM Law.

Sales Bonus

The sales bonuses are being paid for the first 24 months of activity of the customer

Year 1: Up to 10% of the revenue generated by AUM including add-on fees and excluding set up fees.

Year 2: 5% of the incremental revenue

Commission is payable quarterly based on the previous quarter’s income

Cap: 250% of the annual fixed salary

Retention Bonus

FRMC reserves the right to pay retention bonuses (according to the conditions of EBA Guidelines (BA/GL/2015/22) in absence of retention bonus explanations in the applicable ESMA Guidelines).

Long-term incentive plan

FRMC 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 FRMC.

Cap on Variable Remuneration

A cap is applied on the variable remuneration for the Identified Staff and Sales, as follows:

  • Identified Staff: variable remuneration capped at 150% over fixed remuneration up to 200 K€
  • Sales: variable remuneration capped at 250% over fixed remuneration

Deferral

Deferral arrangement for all employees of FRMC

As FRMC has judged that the proportionality principle applies in connection to its staff, the regulatory requirements to defer the variable remuneration does not apply to identified staff whose variable remuneration does not exceed the two cumulative thresholds defined in point 4 of the present policy.

The Discretionary Bonus it is paid in one instalment in March. Deferral arrangements and payment in instruments for identified staff of FRMC

Identified Staff who are not able to apply the proportionality at their individual level will receive their variable remuneration with respect to the following applicable regulatory principles:

  • At least 50% of the variable components consists in instruments, unless the management of UCITS/AIFs accounts for less than 50% of the total portfolio managed by the management company, in which case the minimum of 50% does not apply. This applies equally to both the non-deferred and the deferred parts of the variable remuneration;
  • The instruments referred to in the previous point are subject to an appropriate retention policy designed to align incentives with the interest of the management company and the UCITS/AIFs it manages and the investors of the UCITS/AIFs;
  • 40% of the variable component is deferred with a minimum deferral period of 3 to 5 years unless the lifecycle of the UCITS/AIFs concerned is shorter. Remuneration payable under deferral arrangements vests no faster than on a pro-rata basis. In the case of a particularly high amount, at least 60% of the amount is deferred.

The discretionary bonus does not include remuneration in the form of financial instruments when FRMC is able to apply the proportionality principle at the level of the Identified staff.

Ex post incorporation of risk

FRMC 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 UCITS/AIFs and/or the management company and/or the business unit subsequently suffers a significant downturn in its financial performance;
  • Whether the UCITS/AIFs and/or the management company and/or the business unit in which the staff member works suffers from a significant failure of risk management.

FRMC 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 AIFMD/ UCITS V Directive or ESMA Guidelines.

Award Process

Management companies should adopt a documented policy for the award process and ensure that records of the determination of the overall variable remuneration pool are maintained

  • The risk adjustment in the award process
  • Quantitative ex ante risk adjustment
  • Qualitative measures for ex-ante risk adjustment

Remuneration of Executive and Non-Executive Directors

Executive Directors of FRMC who are employees of FRMC do not receive any additional remuneration for serving as a Board member of FRMC.

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

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

Remuneration Committee

FRMC has in place a Remuneration Committee which is constituted in a way that enables it to exercise competent and independent judgment on FRMC’s Policy and the incentives created for managing risk. The Remuneration Committee is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of FRMC 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 Remuneration Committee.

The Remuneration Committee is composed by the members of the Board of Directors who do not perform any executive functions in FRMC.

The Remuneration Committee meets once a year, but may take place on a more frequent basis as necessary.

Reporting

HR will formally report to the Board of FRMC 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

Management companies 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 Remuneration Committee and the Board of Directors and management body, the control functions should assist in determining the overall remuneration strategy applicable to the management company, having regard to the promotion of effective risk management.

The Compliance Officer of FRMC analyses how the remuneration structure affects the FRMC’s Compliance with legislations regulations and internal policies.

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

Delegated Investment Management Functions

FRMC, having delegated investment management functions, will ensure through the Investment Oversight Team that:

  • Delegates are subject to Regulatory requirements that are equally as effective as those applicable to FRMC (e.g. CRD IV, AIFMD or UCITS V and SFDR); or
  • Appropriate contractual arrangements are in place with the Delegates to ensure that there is no circumvention of the remuneration rules applicable to FRMC.

Internal Disclosure

The remuneration policy is accessible to all staff members of FRMC upon request. FRMC 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

Extract of the policy is made available on the website of FRMC.

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 FRMC, in line with applicable Luxembourg accounting practices and laws.

Appropriate and regulatory required disclosures are included not only in the respective Annual reports of UCITS/AIFs, but also in the KIID and prospectus of each UCITS funds.

Review and update

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

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 FRMC should apply and such potential conflict should be reported to Compliance in order to be logged and properly addressed and mitigated as foreseen in the policy.

 

SFDR Requirements

As per article 5 of SFDR, Financial Market Participant including UCITS Management Companies and AIFMs, 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 websites.

As outlined previously, FundRock’s employees who are identified as risk-takers under UCITS V and AIFMD are not remunerated (fixed and variable remuneration) based on the performance of the funds under management. Based on the limited impact of variable remuneration of the employees identified as risk-takers on the risk profile of the Funds and the nature of the business of the FundRock delegating the portfolio management activity for most Funds to the relevant entities appointed, FundRock assessment is that there is no risk of misalignment with the sustainability risks associates with the investment decisions making process of FundRock in respect of the Funds.

As mentioned above, FundRock delegates portfolio management activity to most of their Funds to a qualified portfolio manager. Where the delegation takes place, FundRock is ensuring that the portfolio manager 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. FundRock will perform periodic oversight and seek confirmations from each delegate portfolio manager that these policies are being complied with and the remuneration structures are not encouraging excessive risk-taking with respect to sustainability.

In certain instances, FundRock may retain portfolio management. In that case, FundRock will appoint systematically a Financial Advisor to the Funds. Even within this configuration FundRock income is almost entirely derived from fee income arising from the provision of services. Employees identified as a risk taker 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 a Financial Advisor is appointed, FundRock is ensuring that the Financial Advisor adoptes remuneration policies and procedures which are consistent with the integration of the sustainability risks.

 

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