MIFIDPRU 8 Disclosure

Introduction

The Financial Conduct Authority (“FCA” or “regulator”) in the Prudential sourcebook for MiFID Investment Firms in the FCA Handbook (“MIFIDPRU”) sets out the detailed prudential requirements that apply to Crake Asset Management LLP (“Crake” or the “Firm”). Chapter 8 of MIFIDPRU (“MIFIDPRU 8”) sets out public disclosure rules and guidance with which the Firm must comply, further to those prudential requirements.

Crake is classified under MIFIDPRU as a small and non-interconnected MIFIDPRU investment firm (“SNI MIFIDPRU Investment Firm”). As such, the Firm is required by MIFIDPRU 8.6 to disclose information regarding its remuneration policy and practices.

The purpose of these disclosures is to give stakeholders and market participants an insight into the Firm’s culture and to assist stakeholders in making more informed decisions about their relationship with the Firm.

This document has been prepared by Crake in accordance with the requirements of MIFIDPRU 8 and is verified by the Management Committee (“ManCom”). Unless otherwise stated, all figures are as at the Firm’s 31 March financial year-end.

Remuneration Policy and Practices

Overview

As an SNI MIFIDPRU Investment Firm, Crake is subject to the basic requirements of the MIFIDPRU Remuneration Code (as laid down in Chapter 19G of the Senior management arrangements, Systems and Controls sourcebook in the FCA Handbook (“SYSC”)). Crake, as an alternative investment fund manager, is also classified as a ‘collective portfolio management investment firm’, and as such, is also subject to the AIFM Remuneration Code (SYSC 19B). The purpose of the remuneration requirements is to:

• Promote effective risk management in the long-term interests of the Firm and its clients;
• Ensure alignment between risk and individual reward;
• Support positive behaviours and healthy firm cultures; and
• Discourage behaviours that can lead to misconduct and poor customer outcomes.

The objective of Crake’s remuneration policies and practices is to establish, implement and maintain a culture that is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profile of the Firm and the services that it provides to its clients.

In addition, Crake recognises that remuneration is a key component in how the Firm attracts, motivates, and retains quality staff and sustains consistently high levels of performance, productivity, and results. As such, the Firm’s remuneration philosophy is also grounded in the belief that its people are the most important asset and provide its greatest competitive advantage.

Crake is committed to excellence, teamwork, ethical behaviour, and the pursuit of exceptional outcomes for its clients. From a remuneration perspective, this means that performance is determined through the assessment of various factors that relate to these values, and by making considered and informed decisions that reward effort, attitude, and results.

Characteristics of the Firm’s Remuneration Policy and Practices

Remuneration at Crake is made up of fixed and variable components. The fixed component is set in line with market competitiveness at a level to attract and retain skilled staff. Variable remuneration is paid on a discretionary basis and takes into consideration the Firm’s financial performance (which is largely dependent on the investment performance of the Fund it manages) and the financial and non-financial performance of the individual in contributing to the Firm’s success. All staff members are eligible to receive variable remuneration.

All staff at Crake are currently either paid a fixed priority distribution (partners), or base salary which is commensurate with market rates for those of their seniority, experience and qualifications. The Management Committee has sought to set the fixed element of remuneration at a sufficient level to provide staff with comfortable living standards, in an attempt to avoid reliance on any variable element of remuneration, whilst ensuring the Firm’s capital and liquidity position remains strong.

Any variable element of remuneration will be primarily based on profits generated by the Firm (over and above all expenses), as opposed to individual performance, to the extent the financial position of the Firm permits. Partners are paid directly out of profits and employees are paid from a bonus pool based on the firm’s profits. The bonus pool is approved by the Management Committee only after it is satisfied that the Firm has adequate regulatory capital and that its liquidity position is sound. If the funds do not perform well as a result of the investment strategy implemented by the Firm, variable remuneration may still be paid to staff if the financial position of the Firm so allows. No individual will be rewarded for the success of a specific transaction and whether a bonus is paid is determined by the success of the Firm as a whole, not by the performance of a specific investment. Bonuses to individuals will be based on actual past performance, not based upon future or indicative results. This will include both financial and non-financial metrics including investment performance and adherence to the Firm’s compliance policies and risk limits.

Investment analysts are awarded variable remuneration primarily based on the quality of their stock analysis and the accuracy of their financial forecasts. Investment analysts are never paid based on the performance of the stocks under their coverage in the portfolio. This is because the Firm strongly believes that this would create a perverse and potentially damaging incentive for analysts to try and maximise the number of stocks they have in the portfolio. It would also risk disincentivising the analysts as they have no say in what goes in the portfolio, which is solely the purview of the portfolio managers.

The above methodology has been adopted to ensure that all staff at Crake are not motivated by short-term gain, such that they are incentivised to adopt an approach which advances risk taking at the expense of a more prudent risk appetite.

Non-investment staff are awarded variable compensation based on a number of factors including client satisfaction, teamwork, diligence, attention to detail and their overall contribution to the smooth and efficient running of the Firm.

All staff, investment and non-investment, are assessed on their adherence to the Firm’s compliance policies and any shortfall or failing would be reflected in the decision to award variable compensation.

The fixed and variable components of remuneration are appropriately balanced: the fixed component represents a sufficiently high proportion of the total remuneration to enable the operation of a fully flexible policy on variable remuneration. This allows for the possibility of paying no variable remuneration component, which the Firm would do in certain situations, such as where the Firm’s profitability is constrained, or where there is a risk that the Firm may not be able to meet its capital or liquidity regulatory requirements.

Governance and Oversight

The Management Committee is responsible for setting and overseeing the overall implementation of Crake’s remuneration policy and practices. The ManCom is also responsible for setting the Firm’s overall annual bonus pool. The Firm’s Remuneration Committee is responsible for determining individual bonuses payable from the bonus pool to employees. In order to fulfil its responsibilities, the Management Committee:

• Is appropriately staffed to enable it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital, and liquidity.
• Prepares decisions regarding remuneration, including decisions that have implications for the risk and risk management of the Firm.
• Ensures that the Firm’s remuneration policy and practices take into account the public interest and the long-term interests of stakeholders in the Firm.
• Ensures that the overall remuneration policy is consistent with the business strategy, objectives, values, and interests of the Firm and of its clients.

Crake’s remuneration policy and practices are reviewed annually by the Management Committee.

Quantitative Remuneration Disclosure

For the financial year to 31 March 2023, the total amount of remuneration awarded to all staff was £4,984,634, of which £2,223,408 comprised the fixed component of remuneration, and £2,761,226 comprised the variable component. For these purposes, ‘staff’ includes both members of the LLP and employees.