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MIFID 8 Disclosure

Financial Year Ended: 30th April 2023

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The Financial Conduct Authority (“FCA” or “regulator”) sets out its prudential expectations for UK regulated firms within a specialist sourcebook within the FCA Handbook, known as (“MIFIDPRU”). MIFIDPRU is broken into numerous chapters which set out the detailed prudential requirements that apply to Perbak Capital Partners LLP (“Perbak” or the “Firm”). Specifically, chapter 8 of MIFIDPRU (“MIFIDPRU 8”) sets out public disclosure rules and guidance with which the Firm must comply, further to those prudential requirements and as highlighted by this disclosure.

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Perbak is classified under MIFIDPRU as a non-small and non-interconnected MIFIDPRU investment firm (“Non-SNI MIFIDPRU Investment Firm”). As such, the Firm is required by MIFIDPRU 8 to disclose information on the following areas:

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  • Risk management objectives and policies;

  • Governance arrangements;

  • Own funds;

  • Own funds requirements; and

  • Remuneration policy and practices.

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The purpose of this disclosure is to give stakeholders and market participants an insight into the Firm’s culture and data on the Firm’s own funds and own funds requirements, allowing potential investors to assess the Firm’s financial strength.

 

This disclosure has been prepared by Perbak in accordance with the requirements of MIFIDPRU 8 and is verified by the Executive Committee. Unless otherwise stated, all figures are as at the Firm’s 30 April 2023 financial year-end.

 

Perbak was established on 28th April 2021 and became regulated by the FCA on 30th January 2023 to provide discretionary investment management service to its clients. Perbak’s clients are the AIFs that it manages and the beneficial owners of the separately managed accounts it manages. Perbak operates a Global Market Neutral Equity strategy with a focus on corporate failure and fraud. Perbak grows revenues by increasing the underlying asset base on which it charges a management fee. This is achieved through growth of the Firm’s client’s assets through capital inflows and value creation.

 

Risk Management Objectives and Policies 

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This section describes Perbak’s risk management objectives and policies for the categories of risk addressed by the requirements of the Firm in the following areas:

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  • Own funds.

  • Concentration risk.

  • Liquidity.

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Own Funds Requirement

Perbak is required to maintain own funds that are at least equal to the Firm’s own funds requirement. The own funds requirement is the higher of the Firm’s:

  • Permanent minimum capital requirement (“PMR”): The level of own funds required to operate at all times. Based on the MiFID investment services and activities that the Firm currently has permission to undertake this is set at £75,000;

  • Fixed overhead requirement (“FOR”): This is equal to one quarter of the Firm’s relevant expenditure, based on the prior year audited financial statements;

  • ICARA and Wind-Down: The minimum amount of capital and liquidity that Perbak would need to have to absorb losses or cost as a result of risks faced and if the Firm has cause to wind down and exit the market; and,

  • K-factor requirement (“KFR”): The KFR is intended to calculate a minimum amount of capital that Perbak would need for the ongoing operation of its business. The K-factors that apply to the Firm’s business are K-AUM (calculated on the basis of the Firm’s assets under management (“AUM”)), and K-DTF (calculated on the basis of the rolling average of a firm’s daily trading flow).

 

Perbak’s own funds requirement is currently set by its FOR, as this is the highest of the metrics. The potential for harm associated with Perbak’s business strategy, based on the Firm’s own funds requirement, is deemed to be low. This is due to the relatively consistent and stable growth in the Firm's revenues and asset base. Additionally, costs are controlled to ensure prudent management of the business.

Perbak maintains a healthy own funds surplus above the own funds requirement to mitigate the risk that it falls below the threshold. In the event that the Firm’s own funds drop to an amount equal to 110% of its own funds threshold requirement, the FCA will be notified as soon as is practicable by the Compliance function.

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Concentration Risk

The potential for harm associated with Perbak’s business strategy, based on the Firm’s concentration risk, is low.

The Firm has multiple clients, which provides for a diverse stream of revenue. Clients are funds and managed accounts directly managed by Perbak. The Firm considers that it has a safe and predictable revenue stream including during stressed market conditions. With regard to the fund vehicles, the investors are typically institutional professional investors that invest for the long term. The Firm, therefore, considers that its asset base is ‘sticky’ and not prone to substantial fluctuations, including during stressed market conditions.

From a cash management perspective, the Firm deposits its cash with a number of well-established multinational institutions to spread concentration risk.

 

Liquidity

Perbak is required to maintain sufficient liquidity to ensure that there is no significant risk that its liabilities cannot be met as they fall due and, further, to ensure that it has appropriate, liquid resources in the event of a stressed scenario (as tested during Perbak’s ICARA process). The potential for harm associated with Perbak’s business strategy, based on its basic liquid assets requirement, is low. Perbak retains an amount it considers suitable for providing sufficient liquidity to meet the working capital requirements under various conditions The cash position of the Firm is monitored by the CCO periodically.

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Risk Management Structure

Perbak’s Chief Risk Officer (“CRO”) and Chairman of the Risk Committee has day-to-day responsibility for performing the risk management function, including the monitoring of individual exposures, ensuring that specific limits are not breached, and conducting regular stress tests to the portfolios under a range of normal and abnormal scenarios. The CRO has the necessary authority and experience within the Firm to perform this role. The CRO is functionally separate from the investment team and is not involved in the investment decision making process therefore his role in the Risk Committee is to ensure any and all prescribed limits are adhered to. The Risk Committee will meet at least monthly and be responsible for ensuring there is no portfolio risk which would conflict with the Firm’s risk framework. The Risk Committee has ultimate responsibility for the Firm’s risk management and controls, for reviewing their effectiveness on a regular basis, and for implementing improvements to any identified deficiencies.

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Government Arrangements

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Overview

Perbak believes that effective governance arrangements help the Firm to achieve its strategic objectives while also ensuring that the risks to the Firm, its stakeholders, and the wider market are identified, managed, and mitigated. The Executive Committee has overall responsibility for Perbak and is therefore responsible for defining and overseeing the governance arrangements at the Firm.

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In order to fulfil its responsibilities, the Executive Committee meets on a monthly basis. Amongst other things, the Executive Committee approves and oversees the implementation of the Firm's strategic objectives and risk appetite, ensures the integrity of the Firm's accounting and financial reporting systems, including financial and operational controls, ensures compliance with the requirements of the regulatory system, assesses the adequacy of policies relating to the provision of services to clients, and provides oversight of the Firm’s senior management.

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A key document that is reviewed, discussed, and ratified by the Executive Committee at least annually is the Senior Management Systems and Controls Document (“SYSC Document”), as this demonstrates how the Firm has met its obligations with regard to its governance arrangements.

The Executive Committee members do not hold any Executive or Non-Executive Directorships.

 

Policy on Diversity and Inclusion

Perbak’s policies on diversity and inclusion are in place at firm level. Whilst Perbak understands the advantages that a diverse team can offer, we do not consciously look to equalise gender or minority ratios and do not set any diversity goals for hiring. Instead, when hiring, Perbak looks to recruit the most suitable candidate in each case. 

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Own Funds

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As at 30 April 2023, Perbak maintained own funds of £2,000,000 The below regulator-prescribed tables provide a breakdown of the Firm’s own funds:

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Own Funds Requirements

Perbak is required to at all times maintain own funds that are at least equal to the Firm’s own funds requirement. The own funds requirement is the minimum requirement of capital the Firm is required to hold, taken as the higher of the PMR, FOR and KFR.

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The below illustrates the core components of Perbak’s own funds requirements:

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Perbak is also required to comply with overall financial adequacy rule (“OFAR”). This is an obligation on Perbak to hold own funds and liquid assets which are adequate, both as to their amount and quality, to ensure that:

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  • The Firm is able to remain financially viable throughout the economic cycle, with the ability to address any material potential harm that may result from its ongoing activities; and

  • The Firm’s business can be wound down in an orderly manner, minimising harm to consumers or to other market participants.

 

Where Perbak determines that the FOR is insufficient to mitigate the risk of a disorderly wind-down, the Firm must maintain ‘additional own funds required for winding down’, above the FOR, that are deemed necessary to mitigate the risks of a disorderly wind-down. Similarly, where the Firm determines that the KFR is insufficient to mitigate the risk of harm from ongoing operations, the Firm must maintain an amount of ‘own funds required for ongoing operations’, above the KFR, that is deemed sufficient to ensure the viability of the Firm throughout economic cycles.

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The Firm’s own funds threshold requirement is the higher of:

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  • The Firm’s PMR;

  • The sum of the Firm’s FOR and its additional own funds required for winding down as calculated via the ICARA; and

  • The sum of the Firm’s KFR and its additional own funds required for ongoing operations.

 

This is the amount of own funds that Perbak is required to maintain at any given time to comply with the OFAR.

To determine the Firm’s own funds threshold requirement, Perbak identifies and measures the risk of harm faced by the Firm and considers these risks in light of its ongoing operations and also from a wind-down planning perspective. The Firm then determines the degree to which systems and controls alone mitigate the risk of harm and the risk of a disorderly wind-down, and thereby deduces the appropriate amount of additional own funds required to cover the residual risk.

 

This process is documented and presented to, and ratified by, the Executive Committee on at least an annual basis.

Remuneration Policy and Practices

Overview

The objective of Perbak’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, Perbak recognises that remuneration is a key component in how it attracts, motivates, and retains quality staff and is key to encourage 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.

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Characteristics of the Firm’s Remuneration Policy and Practices

Remuneration at Perbak can be made up of fixed and variable components. Fixed salary is paid at a level commensurate with the role, experience and qualifications. Variable remuneration is paid on a discretionary basis. The Firm’s remuneration policy and practices are reviewed annually by the Executive Committee.

 

Quantitative Remuneration Disclosure

As Perbak was authorised on 30 January 2023, the Firm has not been through a full performance period and therefore the quantitative remuneration disclosures have not been provided for this review period.

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