Pillar 3 Disclosure

Pillar 3 Disclosure (September 2022)

 1.   Introduction

GBIM Limited (FRN 593265), trading as GBIM, Gore Browne, and Gore Browne Investment Management, is a bespoke investment management company which provides discretionary investment management services primarily to private clients, but also to trusts, charities, companies, and pension funds. Occasional Execution Only transactions occur.

GBIM is authorised and regulated by the Financial Conduct Authority (FCA) for all its affairs, including prudential matters. The company is privately owned by individual employees, some of whom are Directors in the firm.

This disclosure document is published on a solo basis in accordance with the FCA rules concerning Pillar 3 disclosures. It confirms that the company has adequate capital for its size and business complexity over its planning horizon and considering the potential impact of an economic downturn.

2.  Background

The Basel III regulations, commonly referred to as CRD IV, have revised the definition of capital resources and included additional capital and disclosure requirements for certain firms.  This took effect from 1st January 2014; however, GBIM as a firm that does not hold client money or assets remains subject to CRD III.

The FCA interpretation of the CRD framework consists of three “Pillars”:

Pillar 1 is the minimum capital requirement set out by the Directive and instructed in the national discretions.  The minimum capital requirement has three main components:

1. a)      Market Risk (Market Risk Capital Requirement)
2. b)      Operational Risk (Operational Risk Requirement) and
3. c)      Credit Risk (Credit Risk Capital Requirement)

Pillar 2 is the capital adequacy assessment made by each individual firm.  The adequacy of the firm’s minimum capital is no longer dictated by the regulatory minimum requirement and the firm must assess itself as to whether the capital it holds is adequate.  This is achieved by the firm through its Internal Capital Adequacy Assessment Process (ICAAP) which quantifies the risks of certain events on the firm’s profitability and the impact on its ability to continue to operate. It should be noted that the ICAAP requirement from the 1^{st of} January 2022 onwards have been replaced by the ICARA.

Pillar 3 sets out disclosure requirements regarding capital and risk management.  The disclosure requirements aim to complement the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2) and aim to encourage market discipline by allowing market participants to assess key pieces of information on risk exposure and the risk assessment process of the firm.

In regard to the disclosure statement, the rules provide that we may omit one or more of the required disclosures if we believe that the information is immaterial.  Materiality is based on the criteria that the omission or misstatement of material information could change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions.

Basis of Disclosures

These disclosures are produced on an annual basis as a minimum and more frequently, if appropriate. GBIM Limited has a financial reporting date of 31^st December, and these disclosures reflect the position on 31^st December 2021.

These disclosures are produced solely for the purposes of satisfying the Pillar 3 requirements, to explain the basis of preparation, disclosure of certain capital requirements and to provide information about the management of certain risks. The disclosures are not subject to audit, nor do they constitute any form of audited financial statements.

Future Changes

The Investment Firms Prudential Regime (IFPR) came into force on the 1^{st of} January 2022 and apply to GBIM Limited as a Mifid firm from this date. As such this is the final Pillar 3 Statement prior to the implementation of the IFPR. One of the consequences of the IFPR was the replacement of the ICAAP by the ICARA. In 2022 GBIM Limited completed an ICAAP followed by an ICARA.

In June 2022 it as announced that GBIM Limited will merge with Hawksmoor Investment Management Ltd subject to FCA approval at which point GBIM and Hawksmoor will become a single enterprise.

3.  Culture and Conduct

The Executive Board of GBIM Limited seek to embed a culture that ensures all employees act in the best interests of the clients by putting clients’ interests ahead of their own and treating clients fairly.

GBIM Limited Investors expects all employees and contractors to maintain the highest standards of personal and business conduct, market practice, integrity and ethics. Confidence in the integrity of GBIM Limited and its employees is key to establishing trust between the firm and its stakeholders, such as regulators, clients and business partners. GBIM Limited has embedded frameworks and policies that support timely identification, measurement, mitigation and improvement of conduct risk.

Conduct risk is the current or prospective risk that GBIM Limited (or any of its employees) fails to conduct the asset management business in an appropriate manner thereby compromising or harming stakeholders (e.g., clients, regulators, employees, market, etc.) and consequently negatively impacting sustainability and market integrity.

All GBIM staff and contractors are subject to the requirements of the Code of Conduct and attest to their adherence to it on a regular basis.

Individual responsibilities for good conduct are reinforced in written role profiles clearly highlighting conduct responsibilities (underpinned by SM&CR requirements),  as well semi-annual conduct attestations and training activities (including annual ‘Fit and Proper Assessments’) for Certified and Senior Manager roles.

4.     Risk Management

Risk management is the responsibility of the Board of Directors and is led by the firm’s Compliance Officer. Risks are identified by staff, including the Directors and Compliance Officer, and a risk register produced by business function, which is then presented to and reviewed for effectiveness by the Board on an annual basis. Any significant risks without adequate mitigation in place, for example, risks which remain High (Red on the RAG rating system) after mitigation, are discussed in detail at Board level, with a view to deciding how to improve the mitigation and reduce the net risk.

A Compliance Report is submitted to the Board of Directors on a monthly basis and any interim issues or risks as identified are included in this report.

This process is part of a wider formal planning and review cycle throughout the year, in relation to risk management, financial projections and compliance monitoring. GBIM also contracts independent compliance consultants who review the firm’s own internal compliance monitoring processes and subsequent reports.

5. Risk Appetite

We are generally risk-averse in all matters relating to client administration and take-on, safety of all stakeholders, and the regulatory and legal environment.

In carrying out our discretionary investment management services, we take great pains to gain a detailed and considered understanding of how much risk our clients wish to take, and then we construct portfolios for them which we believe have a good chance of achieving their investment and lifestyle objectives. This factors in volatility, correlation analysis as well as ultimate loss of capital.

In all other areas, including strategic development, we will take prudent well-considered risks with a view to securing our objectives.

Risks identified and assessed as part of the firm’s ICAAP are as follows:

Market Risk

Client portfolios are diversified to reduce market risk, in the event that markets fall sharply and remain depressed.  Such falls could impact on GBIM’s assets under management and therefore client revenue (as fees are calculated on an ad valorem basis). In addition, deals are checked to success each day, to avoid wherever possible market risk in relation to failed or delayed deals.

Liquidity Risk

The company does not trade on its own account. The company’s reserves are in cash. These cash reserves are held on deposit with major UK regulated banks and, therefore, it is believed that the company’s capital is not directly exposed to market risk (see market risk above). It should be noted that the returns earned by the company will be impacted by overall levels of equity markets, due to the practice of levying fees as a percentage of funds managed. However, this is treated as a business risk.

Credit Risk

Credit risk is not assessed as an applicable risk to GBIM. In the conduct of its business of operating discretionary portfolios the company does not (and does not expect to) undertake any activities that result in exposure to credit risk. No lending is carried out or extension of credit terms to any client, agent or other party.

Pershing Securities Limited (a BNY Mellon Group Company) carry out extensive and regular reviews of counterparties and banks which they appoint as sub-custodians as per their procedures to hold cash and/or assets on behalf of GBIM clients. These reports are confidential to Pershing Securities Limited and the wider BNY Mellon Group. GBIM carry out Due Diligence reviews on Pershing Securities Limited annually.

The Credit ratings* for the BNY Mellon Group as stated at https://www.bnymellon.com/us/en/investor-relations/bondholder-information.html are currently:

 * A security rating is not a recommendation to buy, sell, or hold securities. The rating may be subject to revision or withdrawal at any time by the assigning organisation. Each rating should be evaluated independently of other ratings.

Leverage Risk

Excessive leverage risk is the “current or prospective risk resulting from GBIM’s vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets”.

As noted above GBIM does not undertake any business activities on its own account, as such no leverage is used, and the leverage ratio is therefore not applicable.

Operational Risk

Operational risks are categorised within GBIM’s risk register, which is managed internally, and reviewed periodically by the Directors. Each risk is separately identified, together with the actions which are being taken to mitigate the risk. This framework and the appropriate mitigating actions are monitored by the Directors and reviewed at least annually.

GBIM does not undertake any significant business outside the core activity of discretionary investment management and does not trade derivatives, structured products or any other asset which is classified as a ‘Non-Standard Asset’.

As GBIM does not hold Client Assets or Money it is considered that GBIM’s operational risk is lower than that of many similar businesses due to the limited range of, and structure of, its activities. The operational risks relating to the conduct of investment management activities are further mitigated by the company’s insurances. Details of the estimated potential calls on GBIM’s capital have been calculated and considered.

GBIM believes that it guards effectively against trading losses, but from time to time dealing errors occur. Sometimes these are profits, sometimes losses. A log of the history of dealing errors is available upon request.

Throughout its history GBIM Limited (and previously as Gore Browne Investment Management LLP) has been profitable. As a result, the company has been able to build reserves to protect against cash flow risks.

The main business risks are identified below.

Business Risks:

• Reduction in client numbers/funds under management as a result of: market falls, damage to reputation, failures in service or standards, a lack of investment in business development/marketing
• Reduction in profitability as a result of declining margins due to increased costs or competitor activity.
• Poor allocation of significant capital and resources into investments or activities that do not produce the expected contribution to business returns.
• Failure to identify or adopt strategies to enable the business to retain its competitive edge and resulting dilution in profitability over time.
• Reputational risk is a key issue for an investment management company, whose relationships are based upon trust. Damage to our reputation might impair our assets under management, our fee levels and our profitability. This might arise out of poor investment performance, poor administration, compliance failures or a failure to maintain good relationships with clients or key staff.

The impact of business risks will likely be spread over a period of time. For example, a short, sharp spike downwards in equity markets followed by a rapid recovery will have a very small impact on GBIM’s revenue.

However, a prolonged period of poor market conditions or damage to the company’s reputation may have a significant impact upon revenue. When assessing these risks, we have also considered the ability and the extent to which the business could take actions such as reducing costs or raising capital to mitigate or remove entirely the impact of the risk to the firm’s capital adequacy. However, cost cutting forms no part of the stress testing financial analysis, and operating sustainability is expected to be maintained without such cost cutting. In practice it is likely that costs might be cut.

Securitisation Risk

GBIM is not an investor, originator or sponsor of securitisation transactions and as a result, it is not necessary to hold capital against securitisation risk.

However, the client portfolios which GBIM controls under a discretionary mandate may be invested in investments which involve securitisations but are either regulated investments or traded on a recognised stock exchange rather than being ‘close’ or unlisted investments.

Investments involving securitisation are carefully researched prior to investing in them, and once invested, they are monitored on an ongoing basis.  This monitoring seeks to mitigate the risk of client money being invested into a securitisation arrangement which fails to operate as anticipated, or the values and risks transferred not emerging as expected, and client portfolios not performing in line with expectations.

Asset Exposure

GBIM Limited for any client portfolio do not invest in any assets are classified as ‘Non-Standard Assets’, all assets purchased are daily priced with regular dealing.

Insurance Risk

The Board reviews the insurance cover at least annually, to ensure that it is sufficient to protect the firm against residual and unexpected risks.

Pension Obligation Risk

Pension obligation risk is not assessed as an applicable risk to GBIM, as the firm does not operate a defined benefit scheme for staff.

Concentration Risk

Concentration risk assesses and monitors the firm’s exposure to asset concentrations. As the firm does not trade as principal, it is not in itself at risk from asset concentrations.

It is ensured that client portfolios are well diversified where possible, in line with relevant client mandate asset allocations.  As always this is as determined by each clients’ information and suitability questionnaire to avoid any portfolio being too concentrated and suffering unduly in a market correction where possible, there may be occasions where this may be limited depending on individual client requirements and circumstances.

Residual Risk

GBIM maintains capital resources higher than the minimum calculated as required in order to provide against unexpected risks, to reduce the impact to clients and the firm.

Interest Rate Risk

The firm diversifies portfolios into investments which benefit from a rising rate environment, in the event that interest rates rise unexpectantly, to account for potential increased discount rates/falling investment prices.

Foreign Exchange Risk

GBIM does not consider foreign exchange risk to be substantive. GBIM controls assets invested in foreign currencies in client portfolios, where there is no foreign exchange hedge back into Sterling, which could mean these asset values are at risk, in the event of an increase in Sterling values. GBIM also manages portfolios held in other currencies, and the calculation of the management charges on the value of the portfolio could be lower, based on foreign exchange movements. Both these scenarios relate to a small proportion of total value of assets controlled.

Capital Resource Requirements – New prudential regime for investment firms

In December 2019 the European Commission published rules introducing the Investment Firms Directive (“IFD”) and Investment Firms Regulation (“IFR”), a new prudential regime for EU investment firms, replacing the current CRR and CRD IV rules. All investment firms that are authorised in accordance with the provisions of the Markets in Financial Instruments Directive (MiFID) will be affected by the IFD/IFR. Post-Brexit the UK will not be subject to EU legislation but will adopt an equivalent UK-specific prudential regime, referred to as the UK Investment Firms Prudential Regime (UK IFPR). The FCA supports the overall goals of the EU regime and were heavily involved in the policy discussions. GBIM Limited fell into scope of the UK IFPR which was implemented from 1^st January 2022.

6. Capital Adequacy

As mentioned in Section 2 above, the firm has a requirement to carry out internal capital adequacy assessments.  GBIM has a process of monitoring its capital resource availability with comprehensive analysis of its capital requirements and potential risk exposures carried out within the firm’s Internal Capital Adequacy Assessment Process (ICAAP) – now superseded by the ICARA

This document includes a review of the adequacy of the firm’s capital resources for the next three years based on its latest financial projections and considers the risks to which the business is exposed.  The ICAAP and ICARA also includes the results of various analyses aimed at assessing the firm’s position under different scenarios.  Based on the ICARA, the firm expects to have sufficient capital to cover its requirements and that no further capital is required.  The ICAAP was updated annually and reviewed and approved by the Board of GBIM, this was subsequently replaced by the ICARA as required under IFPR. The ICARA is reviewed at least annually or more often if required.

The capital resource requirement within the ICAAP is calculated as the higher of:

• The base capital resources requirement.
• The sum of its credit risk and market risk capital requirements; and
• The Fixed Overhead Requirement (“FOR”)

7. Capital Resources

GBIM holds sufficient monies to cover the capital requirement.

8. Remuneration Policy

GBIM is considered to be a Tier 4 firm by the FCA.  Accordingly, it has a Remuneration Policy which applies to the remuneration of all staff, including the Executive Directors (and includes the Compliance Officer and MLRO), Certified Functions and all other permanent staff.  These number 23 in all (including 8 Senior Manager Functions, 13 full time staff, and 2 part-time staff, and all Executive directors are full-time staff).

GBIM operates a Remuneration Committee (Remco) comprising the Chief Executive Officer of GBIM, and two other staff members, all of whom are employees of GBIM. The Committee is appointed by the Board for a period up to three years, extendable by no more than two additional three-year periods.  Remco meets at least two times per year, or more frequently if required, in order to fulfil the Committee’s obligations and duties.

GBIM pays competitive base salaries and may offer discretionary bonuses to a limited number of staff, which are dependent upon the relevant performance of the company and the individual.  Such performance is measured on a profitability against budget rather than investment returns. Options have been granted to 6 members of staff. Decisions on salaries and bonus levels are made by the Remco which has responsibility for setting the remuneration policy for all members of staff, and related responsibilities. Details of remuneration paid are available in our annual accounts, filed with Companies House.

Gore Browne and Gore Browne Investment Management are trading styles of GBIM Limited which is authorised and regulated by the Financial Conduct Authority (FCA number 593265) and is a limited company registered in England (07746731). Registered and Head Office at Chequers Court, 37 Brown Street, Salisbury, Wiltshire, SP1 2AS