The Capital Requirements Directive ("CRD") and Alternative Investment Fund Management Directive ("AIFMD") of the European Union establish a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain.

In the United Kingdom, the CRD and AIFMD have been implemented by the Financial Conduct Authority ("FCA") in its regulations through the General Prudential Sourcebook ("GENPRU"), the Prudential Sourcebook for Banks, Building Societies and Investment Firms ("BIPRU"), The Interim Prudential Sourcebook for Investment Business ("IPRU (INV)").

The CRD consists of three "Pillars":

  • Pillar 1 sets out the minimum capital amount that meets the Firm’s credit, market and operational risk capital requirement;
  • Pillar 2 requires the Firm to assess whether its capital reserves, processes, strategies and systems are adequate to meet Pillar 1 requirements and further determine whether it should apply additional capital, processes, strategies or systems to cover any other risks that it may be exposed to; and
  • Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position to encourage market discipline.

The AIFMD adds further capital requirements based on the Alternative Investment Fund ("AIF") assets under management and professional liability risks.

The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.

The Pillar 3 disclosure document has been prepared by Palmerston Capital Management LLP (the "Firm") in accordance with the requirements of BIPRU 11 and is verified by the senior management. Unless otherwise stated, all figures are as at the 31 March 2019 financial year-end.

Pillar 3 disclosures will be issued on an annual basis after the year end and published as soon as practical when the audited annual accounts are finalised.

We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information for the purpose of making economic decisions about the firm.

In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties.

Where we have chosen to omit information because it is proprietary or confidential we have explained the omission and provided our reason.

Scope and application of the requirements

The Firm is authorised and regulated by the FCA and as such is subject to minimum regulatory capital requirements. The Firm is categorised as a Collective Portfolio Management Investment Firm ("CPMI") by the FCA for capital purposes.

It is an investment management firm and as such has no trading book exposures.

The Firm is not a member of a group and so is not required to prepare consolidated reporting for prudential purposes.

Risk management

The Firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by the Chief Risk Officer, with the Senior Management team taking overall responsibility for this process and the fundamental risk appetite of the firm. The Compliance Officer has responsibility for the implementation and enforcement of the Firm’s risk principles.

Senior Management meet on a regular basis and discuss current projections for profitability, cash flow, regulatory capital management, business planning and risk management. Senior Management engage in the Firm’s risks though a framework of policy and procedures having regard to the relevant laws, standards, principles and rules (including FCA principles and rules) with the aim to operate a defined and transparent risk management framework. These policies and procedures are updated as required.

The Senior Management team has identified that business, operational, market and credit are the main areas of risk to which the Firm is exposed. Annually the Senior Management team formally review their risks, controls and other risk mitigation arrangements and assess their effectiveness. A formal update on operational matters is provided to the Senior Management team on a regular basis. Management accounts demonstrate continued adequacy of the firm’s regulatory capital and are reviewed on a regular basis.

Appropriate action is taken where risks are identified which fall outside of the Firm’s tolerance levels or where the need for remedial action is required in respect of identified weaknesses in the firm’s mitigating controls.


Specific risks applicable to the Firm come under the headings of business, operational, credit and market risks.

Business risk

The most significant business risk faced by the Firm is that of a substantial and sustained reduction in funds under management, caused by adverse market conditions or investor redemptions, resulting in a loss of management fee income.

Regular stress and scenario testing is conducted in order to assess and evaluate the ongoing potential impact of the various key business risks.

Operational risk

The Firm has identified a number of key operational risks to manage. These relate to loss of key staff, systems failure, failure of a third-party provider, potential for serious regulatory breaches, market abuse, fraud, financial promotions, trading error, or failure in administrative tasks. The Firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.

Operational risk is managed by a number of means, including the establishment of robust internal policies and controls, as well as taking out adequate comprehensive insurance.

Credit risk

The Firm is exposed to limited 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 promptly when due from the funds managed. Bank accounts are also held with large international credit institutions and the Firm frequently monitors the credit worthiness of its banking counterparties.

The Firm has concluded that its Tier 1 capital is sufficient to cover its Pillar 1 and Pillar 2 requirements.

Credit risk exposure Risk weighting Risk weighted exposure
Cash in the bank 1.6% or 8% subject to institution and FCA rules £22,000
Inter-company 8% £34,000
Prepayments 8% £4,000

Market risk

The Firm has limited exposure to market risk. Market risk is limited to exposure to foreign exchange fluctuations of the management fee, denominated in US dollars. Management fee income is converted from US dollars into sterling on a monthly basis and US dollar management fee income is retained only to the extent that it is required to match US dollar denominated liabilities.

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 exposure Risk weighting Risk weighted exposure
Foreign currency assets and liabilities 8% £36,000

Professional liability risk

The Firm has a legal responsibility for risks in relation to investors, products & business practices including, but not limited to; loss of documents evidencing title of assets of the AIF; misrepresentations and misleading statements made to the AIF or its 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 unit/share prices; 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 towards its investors. The Firm has in place appropriate internal operational risk policies and procedures to monitor and detect these risks. These procedures and risks are documented, demonstrating how the Firm aims to mitigate these risks. This is reviewed annually.

The Firm has in place appropriate coverage of professional indemnity insurance, where single claims are covered for up to and exceeding the required 0.7% of total AUF assets under management, and aggregate cover exceeds the required 0.9%. The excess of $100k is held in Own Funds.

Regulatory capital

The Firm is a Limited Liability Partnership and its capital arrangements are established in its Partnership Deed. Its capital is summarised as follows:

The main features of the Firm’s capital resources for regulatory purposes are as follows:

31 March 2019
Tier 1 capital* £481,000
Tier 2 capital
Tier 3 capital**
Deductions from Tiers 1 and 2
Total capital resources £481,000

Our Firm is small with a simple operational infrastructure. Its market risk is limited to foreign exchange risk on its accounts receivable in foreign currency, and credit risk from management and performance fees receivable from the funds under its management. The Firm follows the standardised approach to market risk and the simplified standard approach to credit risk.

The Firm is subject to the Fixed Overhead Requirement and is not required to calculate an operational risk capital charge though it considers this as part of its process to identify the level of risk based capital required.

As discussed above the firm is a Limited Licence & Full Scope, CPMI Firm and as such its capital requirements are the higher of:


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

Capital requirement

The Firm’s Pillar 1 capital requirement has been determined by reference to the Firm’s Fixed Overheads Requirement (‘FOR’) and calculated in accordance with Article 95 and the EBA Final draft technical standards as referenced in IPRU(INV) 11.3.3A / base €125k plus 0.02% of AIF AUM. The requirement is based on the FOR since this exceeds the total of the credit and market risk capital requirements it faces and also exceeds its base capital requirement of €50,000.

The FOR is based on annual expenses net of variable costs deducted. The Firm monitors its expenditure on a monthly basis and takes into account any material fluctuations in order 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 Finance Director and reported to senior management on a monthly basis.


The Firm is authorised and regulated by the Financial Conduct Authority as a Collective Portfolio Management Investment ("CPMI") Firm and, so, it is subject to FCA Rules on remuneration. These are contained in the FCA's Remuneration Codes located in the SYSC Sourcebook of the FCA’s Handbook.

CPMI Firms are required to make a remuneration disclosure in respect of the whole of their business, i.e: MIFID and AIFMD.

Enshrined in the European remuneration provisions is the principle of proportionality. The FCA has sought to apply proportionality in the first instance by instituting two tests. Firstly, a Firm that is significant in terms of its size must disclose quantitative information referred to in BIPRU 11.5.18R at the level of senior personnel. Secondly, that a Firm must make disclosure that is appropriate to the size, internal organisation and the nature, scope and complexity of their activities.

The Firm is classified as a "Proportionality Level 3" Firm. Proportionality Level 3 Firms are considered to be the lowest category from a risk perspective and as such can disapply a number of the remuneration code requirements as it is proportionate to do so.

We can confirm that the Firm has considered our individual circumstances and are satisfied that this would be proportionate given our size, internal organisation and the nature, scope and complexity of our activities. The Firm believes that its systems and processes relating to remuneration do not pose a risk to either it, the industry or the regulator’s objectives. In line with FCA guidance, and following the Firm’s own assessment, the Firm has opted to disapply rules under the remuneration principles proportionality rule relating to deferral, payment in shares or other instruments and ratio between fixed and variable remuneration.

Under the FCA’s Remuneration Code, the Firm is required to identify staff who are subject to the Code (‘Code Staff’). Remuneration Code staff comprise categories of staff including senior management, risk takers, staff engaged in control functions and any employee 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 Firm’s risk profile.

It has been determined that, due to the limited number of remuneration code staff, disclosure of aggregated remuneration amounts for the financial year, along with details such as the split between fixed and variable remuneration would result in the disclosure of remuneration amounts that could be attributed to specific employees when such information is combined with publicly available information about the Firm. The Remuneration Code (the "RemCode") cover(s) an individual’s total remuneration, fixed and variable. The Firm incentivises staff through a combination of the two.

The Firm's business is a manager of alternative investment funds.

Our policy is designed to ensure that we comply with the RemCode and our compensation arrangements are as follows:

  1. are consistent with and promote sound and effective risk management;
  2. do not encourage excessive risk taking;
  3. include measures to avoid conflicts of interest. The Firm monitors outside business interests and PA dealing of all members and employees.
  4. are in line with the Firm's business strategy, objectives, values and long-term interests.

Application of the requirements

We are required to disclose certain information on at least an annual basis regarding our Remuneration policy and practices for those staff whose professional activities have a material impact on the risk profile of the firm. Our disclosure is made in accordance with our size, internal organisation and the nature, scope and complexity of our activities. The Firm’s full Remuneration Policy is available at the request of investors.


Rule 2.2.3 of the FCA’s Conduct of Business Sourcebook requires an FCA authorised firm to either disclose its compliance or explain its non-compliance with the principles set out in the UK Financial Reporting Council’s Stewardship Code (the "Code"). Palmerston Capital Management LLP ("the Firm") is regulated by the FCA in the United Kingdom and therefore subject to COBS 2.2.3R.

The Investment Managers strategy focuses on European credit opportunities and generally does not envisage significant investment in public equities. The Strategy does not result in direct investments in equities listed on the London Stock Exchange or any other UK Stock Exchange. Accordingly, whilst the Firm supports the Code as a mechanism to promote best practice in the institutional shareholder governance of UK listed companies, the Firm does not consider the Code or its principles to be appropriate for the funds’ investment strategies.

Should any of the above factors change, we will review our commitment to the Code at that time and make appropriate disclosure.


Palmerston Capital Management LLP (the “Firm”) is authorised and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom and is registered as a Full Scope UK AIFM, a CPMI firm, with FRN: 597266. As such the Firm is required to publish information related to transactions transmitted/placed with brokers for execution, as per MiFID Org Regulation Article 65(6).

The Firm makes investments in debt instruments, credit derivatives and contracts for difference for professional clients only.

The Firm indirectly executes trade orders by passing orders to a broker for execution (with the exception of OTC transactions), as detailed in the quantitative analysis below. As a result of indirect trade orders being passed to a broker, passive/aggressive distinction and directed orders are not relevant to the Firm.

Please note that the below report is based on an analysis of trades related to MiFID Business.

Relative factor importance:

A number of criteria will affect the relative importance of each of these factors. The Firm operates in accordance with its best execution policy at all times. The relative importance of each execution factor is likely to vary depending on the unique characteristics of each trade, as a result the relative importance of execution factors is variable. Relevant factors include, price, costs, speed, likelihood of execution, settlement, order size, nature, venue and any other relevant considerations depending on the characteristics of each specific trade. Generally, the Firm places particular reliance on price is the most important factor for the vast majority of the trades executed. However, this cannot be the case for instruments which are not as liquid and not traded by a variety of counterparties. For such instances, the rest of the factors are being prioritised depending on the details of the trade.

The Firm does not need to obtain the best possible results for its Clients on every single occasion; rather it will verify on an ongoing basis that the execution arrangements it has established work well throughout the different stages of the order execution process. The Firm will take immediate remedial actions, as appropriate, upon identification of any systematic deficiencies, if detected, as part of its regular review process of its best execution arrangements and controls, designed to achieve the best possible results for its Clients on an ongoing basis.

Venue conflicts:

The Firm does not trade with any affiliates.

Venue payments:

The Firm does not receive payments, discounts, rebates or non-monetary benefits in its trading arrangements.

Venue changes:

There have been no changes to our Approved Broker list for the reporting period. Counterparties on our approved brokers list are subject to an authorisation and ongoing monitoring process, which includes but is not limited to the broker’s credit worthiness and financial stability, a review of the performance of execution services provided by the broker, and the broker’s ability to trade effectively on our clients’ behalf.

Client categorisation:

The Firm only executes transactions on behalf of professional clients. All clients are treated equally.

Retail factors:

Not applicable, as the Firm does not execute transactions on behalf of retail clients.

Execution analysis tools:

As part of our best execution monitoring procedures we have considered the data published under Commission Delegated Regulation (EU) 2017/575 by the trading venues we have used, those of our counterparties which operate as systematic internalisers and a sample of reports published by other execution venues which we do not currently utilise.

CTP usage:

Not applicable, as there are currently no consolidated tape providers in Europe.

Please see the attached Excel Spreadsheet for our 2019 RTS 28 Disclosure.

Please see the attached Excel Spreadsheet for our 2018 RTS 28 Disclosure.

If you require any further information please contact our Compliance Officer.


This privacy notice is provided by Palmerston Capital Management LLP (the "Partnership") and sets out the policies of the Partnership for the collection, use, storage, sharing, disclosure and protection of personal data relating to current, prospective and former investors in entities ("Funds") which the Partnership acts as the trading advisor/manager.

In the course of business, the Partnership will collect, record, store, adapt, transfer and otherwise process "personal data" as a "controller" (in each case, as defined in Regulation (EU) 2016/679 of the European Parliament and of the Council (the "GDPR" and, together with all other applicable data protection law, "Data Protection Laws")).

The Partnership is a controller for purposes of the GDPR and will hold any personal data in accordance with Data Protection Laws.

Investors’ personal data (if the investor is a natural person) or personal data provided by an investor in relation to one or more natural persons (if the investor is a non-natural person) may be transferred to "processors" (as defined in the GDPR) supporting the activities of the Partnership including, without limitation, administrator and/or custodian, and/or their respective affiliates, sub-contractors and certain third party service providers (including advisers, finance providers, the bankers, auditors, prime brokers, regulatory bodies, taxation authorities, and/or technology providers, including entities situated in countries outside the European Economic Area (the "EEA") (subject as set forth below)).

The Partnership and/or any such processors may process investors’ personal data for any one or more of the following purposes and legal bases:

  1. processing investors’ applications and, if applicable, admissions to the Funds;
  2. operating the Funds, including managing and administering an investor’s investment in the Funds on an on-going basis which enables the Partnership, the Funds and investors to satisfy their contractual duties and obligations to each other;
  3. maintaining records and correspondence relating to an investor’s participation in the Funds, and communicating with the investor on an on-going basis in relation to the Funds’ and the Partnership’s investment program;
  4. complying with any applicable legal, tax or regulatory obligations on the Partnership, Funds and/or any of its delegates or service providers under any applicable laws and anti-money laundering and counter-terrorism legislation, whether such laws or legislation derive from the laws of an EEA country or not;
  5. any other legitimate business interests of the Partnership to whom personal data is disclosed, where such interests are not overridden by the interests of investors, including for statistical analysis and market research purposes; and/or
  6. any other specific purposes where an investor has given their specific consent (on the understanding that, where processing of personal data is based on consent, an investor will have the right to withdraw it at any time).

The Partnership and/or any of its delegates and service providers will not transfer personal data to a country outside of the EEA unless that country ensures an adequate level of data protection, appropriate safeguards are in place or relies on one of the derogations provided for under GDPR1

The Partnership will not keep personal data for longer than is necessary for the purpose(s) for which it was collected. In determining appropriate retention periods, the Partnership will have regard to any applicable statutes of limitation and any statutory or regulatory obligations to retain information, including anti-money laundering, counter-terrorism or tax legislation. The Partnership will take all reasonable steps to destroy or erase the data from its systems when they are no longer required.

Investors have the right to request access to their personal data (if the investor is a natural person) kept by the Partnership as data controller and the right to rectification or erasure of such personal data and to restrict or object to processing of such personal data, subject to any restrictions imposed by GDPR. Where the investor is a non-natural person, it may exercise such rights on behalf of a natural person whose personal data is kept by the Partnership as data controller, in so far as the natural person has given the investor authority to exercise such rights on its behalf. In such circumstances the Partnership may request additional confirmation of the investor's authority to exercise the rights.

Personal data is required to be provided by investors to the Funds for statutory and contractual purposes; and, as such, if an investor fails to communicate the investor’s personal data (if the investor is a natural person) or personal data in relation to one or more natural persons related to the investor (if the investor is a non-natural person), or the investor objects to the processing of personal data, the Funds may be unable to permit, process, or release the investor’s investment in the Fund and this may result in the Fund terminating its relationship with the investor. Where the investor is a non-natural person and provides personal data in relation to one or more natural persons related to the investor, it is the investor’s responsibility to ensure that appropriate arrangements are in place as between the investor and such natural persons to permit the investor to provide those natural persons’ personal data to the Fund.

Investors may request further information about any of the above rights, or may complain about how its personal data has been handled by contacting the Partnership (as the Funds’ designated representative in the EU) or the data protection authority in their home country (for investors based in the United Kingdom, this would be the Information Commissioner’s Office (the "ICO"): https://ico.org.uk/global/contact-us/ or by telephone to 0303 123 1113).

If an investor is not satisfied with the Partnership’s response to its complaint or believes that the Partnership’s processing of its information does not comply with Data Protection Laws, the investor may make a complaint to the data protection authority in their home country (for investors based in the United Kingdom, this would be the ICO at the contact details set out above).

1 The European Commission has prepared a list of countries that are deemed to provide an adequate level of data protection which, as of the date of this privacy notice, includes Switzerland, Guernsey, Argentina, the Isle of Man, Faroe Islands, Jersey, Andorra, Israel, New Zealand and Uruguay. Further countries may be added to this list by the European Commission at any time. The United States is also deemed to provide an adequate level of protection where the US recipient of the data is privacy shield-certified. If a third country does not provide an adequate level of data protection, then the Company and/or any of its delegates and service providers will ensure it puts in place appropriate safeguards such as the model clauses (which are standardised contractual clauses, approved by the European Commission).