Introduction

As a Collective Portfolio Management Investment (“CPMI”) firm authorised and regulated by the Financial Conduct Authority (“the FCA”), Kryger Capital Limited (“the Firm”) is required to disclose information relating to the capital it holds and each material category of risk it faces in order to assist users of its accounts and to encourage market discipline. These disclosures aim to provide information on the risk exposures faced by the Firm and the risk assessment process it has in place to monitor and mitigate these exposures. Known as “Pillar 3” disclosures, they are required to be made under BIPRU 11 and are seen as complementary to the Firm’s minimum capital requirement calculation (“Pillar 1”) and the internal review of its capital adequacy (“Pillar 2”).

The Pillar 3 disclosure document has been prepared by the Firm in accordance with the requirements of BIPRU 11 and is verified by the Firm’s Directors. Unless otherwise stated, all figures are as at the 31 December 2021 financial year-end. The disclosure covers the Firm on a solo basis only.

Rule 11 of BIPRU sets out the provisions for Pillar 3 disclosure. The rules provide that companies may omit one or more of the required disclosures if such omission is regarded as immaterial. Information is considered material if its omission or misstatement could change or influence the decision of a user relying on the information. In addition, companies may also omit one or more of the required disclosures where such information is regarded as proprietary or confidential. The Firm believes that the disclosure of this document meets its obligation with respect to Pillar 3.

Risk management

The Directors are responsible for determining the fundamental risk appetite of the business. The Firm has established robust risk management processes to ensure effective systems and controls are in place to identify, monitor and manage risks arising in the business. The Directors are responsible for facilitating the implementation and enforcement of the Firm’s risk processes.

Specific risks applicable to the Firm come under the headings of business, operational, credit and market risks. The Directors will formally discuss material potential risks during Firm Meetings. Management accounts are available during Firm Meetings for the purpose of demonstrating continued adequacy of the Firm’s regulatory capital. Where the Directors identify any risks that fall outside of risk tolerance levels, appropriate action is taken. The same is true should the Directors identify weaknesses in the Firm’s mitigating systems and controls.  

A formal update on operational matters will be presented at Firm Meetings. Specific risks applicable to the Firm come under the headings of business, operational, credit and market risks.

Business risk

The Firm’s revenue is reliant on the performance of the existing funds under management and its ability to launch new funds where such opportunities exist. As such, the business risk posed to the Firm relates to underperformance resulting in a decline in performance fee revenue, the risk of a loss of revenue due to redemptions from the current open-ended funds managed by the Firm and adverse market conditions hindering the launch of new funds.

Operational risk

As a BIPRU “limited licence” firm, the Firm is not subject to the Pillar 1 operational risk requirement. The Firm places strong reliance on the procedures and controls that it has in place in order to mitigate operational risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.

In addition, the Firm has an operational risk framework and has assessed various business and operational risks in its ICAAP and set out appropriate actions to manage them. These include (but are not limited to) those relating to loss of key staff, trade dealing errors, fund valuation errors, failure of outsourced service providers and an inadequate business continuity / disaster recovery plan. Appropriate policies are in place to mitigate these risks, one of which is to maintain adequate professional indemnity insurance cover. Other relevant mitigants are listed below (although the list is not exhaustive):

• The risk of losing key management personnel is mitigated by having an appropriate remuneration structure in place including an annual comparison to market rates. Senior personnel are incentivised to perform;
• The risk of trade dealing errors is mitigated by low trading volume, having a controlled environment and skilled staff. In addition, all trades are matched to third party confirmation systems on T;
• The risk of valuation errors is mitigated by the appointment of independent, professional Fund Administrators. The Funds’ Administrators are responsible for performing fund valuations, which are fully reconciled by personnel at the Firm. The Firm has a daily process in place to reconcile positions and prices between themselves and the Prime Brokers. Month-end prices are all fully reconciled and agreed with the Fund Administrator based on the agreed Pricing Policy;
• The risk of failure of outsourced and key service providers is considered to be low because, and for example, the Prime Brokers and the Funds’ Administrators are all large and well-established market participants; and
• The risk of an inadequate business continuity / disaster recovery plan is mitigated by having robust arrangements which are routinely tested.

Credit Risk

The Firm is exposed to credit risk in respect of its debtors, investment management fees billed and cash held on deposit.

The number of credit exposures relating to the Firm’s investment management clients is limited. Management fees are drawn monthly from the funds managed and performance fees are drawn annually. The Firm considers that there is little risk of default by the funds being managed. The Firm holds bank accounts with large international credit institutions which further reduces credit risk exposure.

Given the nature of the Firm’s exposures, no specific policy for hedging and mitigating credit risk is in place. The Firm uses the simplified standardised approach detailed in BIPRU 3.5.5 of the FCA Handbook when calculating risk weighted exposures in respect of its debtors. This amounts to 8% of the total balance due. All bank balances are subject to a risk weighted exposure of 1.6% in accordance with BIPRU 3.4 of the FCA Handbook.

The Firm has adopted the internal ratings based (“IRB”) approach in BIPRU 4. It is subject to non-trading book potential exposure only and thus is not subject to the rules in BIPRU 7.

Credit risk summary

Credit risk exposure	Risk weighting	Risk weighted exposure
Cash in the bank	0.64%	£56,101
Inter-company	8%	£40,725
Trade Debtor	8%	£664,939
Prepayments and Accruals	8%	£7,599
Other debtors (<1 year)	8%	£0
Other debtors(>1 year)	8%	£0
Fixed assets	8%	£890

Market risk

The Firm takes no market risk other than foreign exchange risk in respect of its accounts receivable and cash balances held in currencies other than GBP. The Firm takes no trading book positions on its balance sheet and therefore only has indirect market risk exposure. Any potential foreign exchange risks only arise in respect of the Firm’s accounts receivable and cash balances held in currencies other than GBP. Losses arising on foreign exchange movements are monitored on a regular basis and reported to senior management immediately, where such urgency is required. Otherwise, they are reported via the quarterly management accounts.

The Firm calculates its foreign exchange risk by reference to the rules in BIPRU 7.5.1 of the FCA Handbook and applies an 8% risk factor to its foreign exchange exposure.

Market risk summary

Market risk exposure	Risk weighting	Risk weighted exposure
Foreign currency position risk requirement	8%	£60,161

Professional liability risk

The Firm has a legal responsibility for risks in relation to investors, products and business practices for the alternative investment funds (“AIFs”) for which it is the appointed Alternative Investment Fund Manager (“AIFM”) including, but not limited to:

• loss of documents evidencing title of assets of the AIFs;
• misrepresentations and misleading statements made to the AIFs or their investors;
• acts, errors or omissions;
• failure by the senior management to establish, implement and maintain appropriate procedures to prevent dishonest, fraudulent or malicious acts;
• improper valuation of assets and calculation of share prices and/or LP interests; and
• risks in relation to business disruption, system failures, process management

The Firm is aware of, and monitors, a wide range of risks within its business operations and for its investors and its clients. The Firm has in place appropriate internal operational risk policies and procedures to monitor and detect risks, which are reviewed periodically.

The Firm holds additional own funds equating to 0.01% of the total AIF assets under management.

Capital adequacy

Capital resources

As at 31 December 2021, the Firm held regulatory capital resources of £858,000. This comprised share capital and reserves.

Capital requirement

As an AIFM and CPMI Firm, the Firm’s capital requirements are the higher of:

• €125,000 + 0.02% of AIF AUM > €250m; and
• The sum of the market and credit risk requirements; or
• The fixed overheads requirement (“FOR”), which is essentially 25% of the Firm’s operating expenses less certain variable costs.

0.02% is taken on the absolute value of all assets of all funds managed by the Firm (for which it is the appointed AIFM) in excess of €250m, including assets acquired through the use of leverage, whereby derivative instruments shall be valued at their market value, including funds where the Firm has delegated the management function but excluding funds that it is managing as a delegate.

The FOR is calculated, in accordance with FCA rules, based on the Firm’s previous year’s expenditure. The Firm has adopted the simplified standardised approach to credit and market risk and figures have been produced on that basis. The Firm is not subject to an operational risk requirement.

As at 31 December 2021, the Firm’s Pillar 1 capital requirement was £830,000. This was determined by reference to the total of the credit and market risk capital requirements and calculated in accordance with the FCA’s General Prudential Sourcebook (“GENPRU”) at GENPRU 2.1.53. The requirement is based on the total of the credit and market risk capital requirements the Firm faces, because this requirement at 31 December 2021 exceeded the Firm’s Fixed Overheads Requirement (“FOR”) and also exceeds its base capital requirement of €125,000.

The FOR is based on annual expenses net of variable costs deducted, which include discretionary bonuses paid to staff and one-off legal fees. The Firm monitors its expenditure on a monthly basis and considers any material fluctuations to determine whether the FOR remains appropriate to the size and nature of the business or whether any adjustment needs to be made intra-year.

This is monitored by the Head of Finance and reported to the Firm and the Chief Compliance Officer on a quarterly basis or sooner should the urgency arise.

Satisfaction of capital requirements

Since the Firm’s ICAAP (Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed are considered adequate to continue to finance the Firm over the next financial year. No additional capital injections are considered necessary, and the Firm expects to be profitable in the future.

In managing its capital, the Firm considers a variety of requirements and expectations. Sufficient capital is in place to support current and projected business activities, according to both the Firm’s own internal assessment and the requirements of its financial regulators. Capital is also managed to achieve sound capital ratios at all times, and the Firm therefore considers not only the current situation but also the projected developments in both its capital base and capital requirements. The main tool by which the Firm manages the supply side of its capital ratios is active management of drawings.

Verification

The information contained in this document has not been audited by the Firm’s external auditors and does not constitute any form of financial statement.

Materiality, Proprietary Information and Confidentiality

The Firm regards information as material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. A disclosure deemed immaterial may be omitted from this Pillar 3 Risk Disclosure.

The Firm regards information as proprietary if sharing that information with the public would undermine its competitive position. Proprietary information may include information on products or systems which, if shared with competitors, would render the Firm’s investments therein less valuable.

The Firm must equally regard information as confidential if there are obligations to customers/clients or other counterparty relationships binding the Firm to confidentiality. If any such information is omitted, the Firm shall disclose such and explain the grounds why it has been omitted.

Remuneration Code Disclosure (BIPRU 11.5.18 R)

The Firm has applied the rules in a manner that is proportionate to BIPRU firms and makes this disclosure in accordance with those expected of a firm that is not ‘significant’ in terms of its size and the nature, scope and complexity of its activities (as per BIPRU 11.5.20R(2)). The Directors are responsible for the remuneration policy, which is designed to ensure that the Firm’s compensation arrangements:

• are consistent with and promote sound and effective risk management;
• do not encourage risk-taking which is inconsistent with the risk profiles of the AIFs managed;
• seek to avoid creating conflicts of interest; and
• are in line with the Firm's business strategy, objectives, values and long-term interests.

Compensation is based upon consideration of qualitative and quantitative factors, including the performance of the individual and business overall. Variable remuneration is adjusted in line with capital and liquidity requirements.

The Firm has one business area, being investment management (BIPRU 11.5.18(6)). The total remuneration paid to Code Staff to 31 December 2021 was £376,000. All Code Staff at the Firm are also Senior Management.