1. Introduction
In accordance with its obligations under:
and;
the Management Company is required to have remuneration policies and practices for those categories of staff, including senior management, risk takers, control functions, and any employees 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 profile of the Management Company or each Alternative Investment Fund (“AIF”) and Undertakings for Collective Investment in Transferable Securities (“UCITS”) Fund that are consistent with and promote sound and effective risk management and do not encourage risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the AIFs/UCITS.
This remuneration policy (the “Policy”) has been approved by the Board of Directors of the Management Company (the “Board”) and the Board will be held ultimately responsible for its implementation. Any amendments to this Policy will be subject to the prior approval of the Board.
2. Objective of the Policy
In order to comply with the requirements as set out in the Regulations and ESMA Guidance, the objective of this Policy is to put in place remuneration policies and practices that:
The objective of this Policy is consistent with and promotes sound and effective risk management by:
3. Categories of staff of the Management Company to which the Guidelines apply
The ESMA Guidelines relating to governance, the remuneration committee and transparency, and certain of the risk-alignment guidelines, apply to the Management Company as a whole.
It is primarily the responsibility of the Management Company to determine the categories of staff whose professional activities have a material impact on the Management Company’s or the AIFs/UCITS risk profile (“Identified Staff1.”). The risk alignment guidelines apply only to Identified Staff.
Identified Staff whose compensation falls under these provisions typically include:
4. Type of remuneration that is subject to the Guidelines
Under the regulations set out above, remuneration consists of all forms of payments or benefits paid by the Management Company in exchange for professional services rendered by “Identified Staff” to the AIFs/UCITS, including:
In light of the limited impact of the remuneration of the Identified Staff on the risk profile of the Funds and the nature of the business of the Management Company in its role as a third-party management company, the remuneration structure of the Identified Staff and the delegation of the investment management activity for the Funds to the relevant entities appointed, the Management Company believes that it is not appropriate for any variable remuneration that is offered to Identified Staff to comprise units or shares of the Funds or equivalent ownership interests. Similarly, the Management Company does not deem appropriate that deferral of the variable remuneration policy should be implemented in view of the life cycle and redemption policy of the Funds, as the variable remuneration components are not based on the performance of the Funds and therefore there is no risk of misalignment with the nature of the risks of the Funds.
Dividends or similar distributions are not categorised as remuneration for these purposes unless the material outcome of such dividends results in a circumvention of the relevant remuneration rules.
The “investment” of the Identified Staff member referred to above must be represented by an actual cash disbursement; any loans granted by the Management Company to the staff member and then “invested” in the AIFs/UCITS do not qualify as an investment and any related profit is considered compensation under the Directive.
Taking the nature, scale and complexity of the Management Company into consideration, the Board of Directors believes that the approach to performance-based pay as outlined above is appropriate and reflects the risk profile, appetite and strategy of the Management Company and of the AIFs/UCITS.
5. Remuneration Policy
The Management Company does not impose a limit with regard to variable compensation versus fixed compensation. However, the Management Company’s policy is to pay all staff a fixed component representing a sufficiently high proportion of the total remuneration of the individual to allow the Management Company to operate a fully flexible policy, with the possibility of not paying any variable component.
Where the Management Company pays its staff performance related pay, the following requirements will be applied:
(a) staff will not receive any remuneration based on the performance of the AIFs/UCITS which are managed.
(b) 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 of the business, and when assessing individual performance, financial as well as non-financial criteria are taken into account;
(c) the Management Company does not pay guaranteed variable remuneration;
(d) 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;
(e) the measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks;
(f) the Management Company currently provides pension benefits to its staff and confirms that its policies are in line with the business strategy, objectives, values and long-term interests of the Management Company and the AIFs/UCITS.;
(g) staff are required not to undertake any personal hedging strategies or remuneration – and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements;
(h) variable remuneration is not paid through vehicles or methods that facilitate the avoidance of
the requirements of the Directive’s requirements.
Taking into account paragraph (a) above, each of the below points will not apply to staff of the
Management Company:
i. the assessment of performance is set in a multi-year framework appropriate to the life-cycle of the AIFs/UCITS in order to ensure that the assessment process is based on longer term performance and that the actual payment of performance-based components of remuneration is spread over a period which takes account of the performance fee calculation period of the relevant AIFs/UCITS, the AIFs/UCITS redemption policy and its investment risks (as set out in the AIFs/UCITS Prospectus/Supplement);
ii. not less than 50% of any variable remuneration consists of shares of the AIFs/UCITS or equivalent ownership interests or share-linked instruments or equivalent non-cash instruments, for as long as the AIFs/UCITS represents 50% or more of the total assets managed by the Management Company. (As and when that ceases to be the case, the 50% requirement does not apply).
The instruments referred to in this point shall be subject to an appropriate retention policy designed to align incentives with the interests of the Management Company and the AIFs/UCITS and the investors in the AIFs/UCITS.
iii. at least 40%, of the variable remuneration component is deferred over a period of at least three years; remuneration payable under deferral arrangements vests no faster than on a pro- rata basis; in the case where the Directors determine that a variable remuneration component is of a particularly high amount, at least 60% of the amount shall be deferred over this period.
iv. the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the Management Company as a whole, and justified according to the performance of the business unit, the AIFs/UCITS and the individual concerned. The total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the Management Company occurs, taking into account both current compensation and reductions in pay-outs of amounts previously earned, including through malus or clawback arrangements.
6. Delegation
When delegating portfolio management (or any part thereof) and/or risk management activities, the
Management Company requires that:
The remuneration of those engaged in the performance of the risk management function reflects the achievement of the objectives linked to the risk management function, independently of the performance of the business areas in which they are engaged.
7. Remuneration of Non-Executive Directors
The Non-Executive members of the Board of Directors receive a fixed fee only and do not receive performance-based remuneration therefore avoiding a potential conflict of interest. The basic fee of a Non-Executive Board member is set at a level that is on par with the rest of the market and reflects the qualifications and contribution required in view of the AIFs/UCITS complexity, the extent of the responsibilities and the number of board meetings. No pension contributions are payable on Non- Executive Board members’ fees.
8. Internal governance arrangements which must be applied to remuneration
Remuneration Committee
The Management Company is supported by the Remuneration Committee of Sumitomo Mitsui Trust (Ireland) Limited (“SMTIL”)3 (“the Remuneration Committee”) which consists of selected members from the Directors of SMTIL and assists the Board to ensure the Policy objectives are achieved including the responsibility for the determination of the remuneration of Directors and Executives as well as of selected senior management members. The Executive Committee of SMTIL (the “Executive Committee”) and the other Executives have authority to determine the remuneration of the staff of the Company as stipulated in this Policy.
The Board are responsible for overseeing the central and independent review of the implementation of the remuneration policies and practices.
The Board is constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk. The Board is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of the Management Company or the AIFs/UCITS.
SFDR Requirements
Article 5 of the SFDR, requires financial market participants (i.e. UCITS Management Companies and AIFMs) outline within their remuneration policies information on how those policies are consistent with the integration of sustainability risks and shall publish that information on their websites. In light of the limited impact of the variable remuneration of the Identified Staff on the risk profile of the Funds and the nature of the business of the Management Company including the delegation of the investment management activity to the relevant Investment Managers, there is no risk of misalignment with the sustainability risks associated with the investment decision making process of the Management Company in respect of the Funds.
As noted above, the Management Company delegates portfolio management activity to a suitably qualified delegates i.e. the Investment Managers of each Fund. These delegates shall ensure that they adopt remuneration policies and procedures which are consistent with the integration of sustainability risks, if sustainability risks are integrated into the investment decision making process. The Management Company shall seek periodic confirmations from each delegate investment manager that these policies are being complied with and the remuneration structures are not encouraging excessive risk-taking with respect to sustainability risks.
9. Disclosure
The Management Company will comply with the disclosure requirements set out in the Regulations.
10. Annual Review
This Policy (together with compliance herewith) will be subject to internal review conducted by the Management Company, the Human Resources department, the Compliance department, the Executive Committee, the Remuneration Committee and the Board. This Policy is not subject to an independent external annual review.
These reviews will ensure that:
The Management Company will take appropriate measures to address any deficiencies.