Notices

  • Brevan Howard Asset Management LLP: Modern Slavery Transparency Statement

    The Modern Slavery Act 2015 (the “Act”) seeks to address the role of businesses in preventing modern slavery from occurring in their supply chains and organisations. As required by Section 54 of the Act, this statement constitutes the slavery and human trafficking statement (“Statement”) for the financial year ending 31 March 2016 for Brevan Howard Asset Management LLP (“BHAM”).

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    Organisational Structure and Business

    BHAM is regulated by the FCA and its sole business is asset management. BHAM has non-UK affiliates in Jersey, Geneva, New York, Hong Kong, Washington, Singapore and Tel Aviv; none of which conduct business in the UK. However, Brevan Howard Services Limited and Brevan Howard Partnership Services Limited (both members of BHAM) are included in the ambit of this Statement as they provide services directly to BHAM.

    Policy on Slavery

    It is the policy of BHAM to ensure its business and supply chains are free from modern slavery and human trafficking. BHAM will continue to implement and enforce effective systems and controls to minimise, as far as possible, the risk of modern slavery or human trafficking taking place anywhere in its business or supply chains. BHAM expects its suppliers to adopt the same standards it meets itself and will not deal with any organisation that may be connected with slavery in any way.

    Approach to Modern Slavery Act

    1. Review and due diligence

    To assess the nature and extent of our exposure to the risk of slavery and human trafficking in its supply chains and business, BHAM conducted a review on the basis of perceived risk. The main criteria used to evaluate suppliers included the origin of manufacture, the nature of services provided and the location where services are provided from.

    Whilst we acknowledge that risk factors are present in all supply chains across all sectors, the sole nature of BHAM’s business is as an asset manager operating in capital markets. This is a low risk industry utilising a high level of information technology and highly skilled labour, and a low level of manufactured goods.

    BHAM identified that some parts of its supply chain could pose a potential risk, i.e. third party suppliers who provide products and services for office buildings such as cleaning staff, security staff and courier services (“Relevant Suppliers”).

    1. Background checks and Communication with Relevant Suppliers

    BHAM undertook checks on any Relevant Suppliers to confirm if they have been named on international watch lists or have negative press associated with their business. We also contacted any Relevant Suppliers to explain our expectations of compliance with the Act and seek confirmation that they comply with the Act.

    1. Review of procurement procedures

    BHAM will review any potential new supplier and request information regarding work practices as well as communicating that we have a zero tolerance policy with regards to slavery and continue to monitor potential risk areas identified in our supply chains.

    1. Awareness

    BHAM educated key stakeholders including the senior managers of BHAM and Head of Procurement on the requirements of the Act.

    Approval Procedure and Publication

    This Statement will be reviewed annually and updated where necessary to reflect changes in circumstances and actual practice. This Statement has been reviewed by senior management and approved on behalf of the members of BHAM on 23 February 2017 and the board of directors of Brevan Howard Services Limited and Brevan Howard Partnership Services Limited on 24 February 2017.

  • UK Stewardship Code

    FCA Conduct of Business Rule 2.2.3R requires FCA authorised firms to either disclose their compliance or explain their non-compliance with the principles set out in the UK Financial Reporting Council’s Stewardship Code (the “Code”). Brevan Howard Asset Management LLP (“BHAM” or “the Firm”) is authorised and regulated by the FCA in the United Kingdom and therefore subject to the Code.

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    BHAM manages assets across a number of global diversified hedge fund and UCITS strategies, but does not take an activist shareholder approach. Accordingly, whilst the Firm supports the Code as a mechanism to promote best practice in the institutional shareholder conduct of UK listed companies, the Firm does not consider the Code or its principles to be appropriate for the funds’ investment strategies. BHAM actively endorses hedge fund industry best practice and is a founding member of the Hedge Fund Standards Board, a body which promotes hedge fund best practice in relation to disclosure, valuation, risk management and fund governance.

  • Pillar 3 Disclosure

    The following disclosures are provided pursuant to the Pillar 3 disclosure rules as laid out by the Financial Conduct Authority (“FCA”) within section 11 of its Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”). The regulatory aim of the disclosures is to improve market discipline through additional transparency.

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    The prudential framework for investment management firms consists of three “pillars” under the Capital Requirements Directive which has been implemented by the FCA through the General Prudential Sourcebook (“GENPRU”) and BIPRU:

    • Pillar 1 sets out the minimum capital requirements for the investment manager;
    • Pillar 2 deals with the Internal Capital Adequacy Assessment Process (“ICAAP”) and the Supervisory Review and Evaluation Process through which the investment manager and the regulator satisfy themselves as to the adequacy of capital; and
    • Pillar 3 requires the investment manager to publish its objectives and policies in relation to risk management, and information on its risk exposures and capital resources.

    The disclosures below are the required Pillar 3 disclosures and apply solely to Brevan Howard Asset Management LLP (the “Firm”). The disclosures do not apply to the funds managed by the Firm as described below, which are exposed to different risks. Unless otherwise defined, capitalised terms used herein have the meanings given to them in BIPRU. The disclosures reflect the arrangements and financials of the Firm as at 31 March 2016 unless otherwise indicated.

    Background to the Firm

    The Firm is an investment manager based in London, United Kingdom, and is incorporated in England and Wales as an English Limited Liability Partnership. The Firm is a solo UK entity authorised and regulated by the FCA in the United Kingdom to conduct investment management business. The Firm is a BIPRU firm without retail clients, and does not hold regulatory permissions to manage or hold client money or client assets.

    The Firm’s primary business activity is to act as investment manager in respect of certain investment funds for which Brevan Howard Capital Management LP (“BHCM LP”) acts as manager. BHCM LP grants the Firm a discretionary mandate to provide investment services in respect of some or all of the portfolios of these funds, subject to any contractual restrictions set out in the relevant investment management agreement, and any investment restrictions described in the prospectus for the relevant funds.

    In addition to investment management services, the Firm provides certain middle-office and back-office support services to BHCM LP.

    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 and must not be relied upon in making any judgement on the Firm.Materiality

    BIPRU Pillar 3 rules (BIPRU 11.3.5R and BIPRU 11.4.1R) provide that Pillar 3 disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions.

    Materiality

    BIPRU Pillar 3 rules (BIPRU 11.3.5R and BIPRU 11.4.1R) provide that Pillar 3 disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions.

    Proprietary and confidential information

    BIPRU Pillar 3 rules (BIPRU 11.3.6R and BIPRU 11.3.7R) provide that firms may omit information where the information is regarded as proprietary or confidential.

    Pillar 3 Disclosures

    BIPRU 11.5.1R – Risk Management Objectives and Policies

    Governance framework

    The Firm’s governance arrangements are headed by the Board of Partners (the “Board”). The Board, as part of its regulatory duty to apportion key responsibilities, has resolved to delegate general oversight of the Firm’s business to the Executive Committee of the Board (the “Executive Committee”).

    The Executive Committee operates as the governing body of the Firm. It meets on a monthly basis and on an ad hoc basis if circumstances so require, and is responsible for the day to day running and oversight of the Firm on behalf of the Board. The Executive Committee reviews, amongst other things, the level of fund capital and risk limits allocated to individual traders, the Firm’s financial information (such as monthly accounts, regulatory returns, and audited year end accounts), marketing activity, HR matters, the information technology environment, the ICAAP, internal and external audit reports and related recommendations, operational risk and compliance reports, and status reports from departmental heads.

    A representative of the Executive Committee sits on each of the Firm’s management committees which report into the Executive Committee, normally as the Chairman of that specific committee. This provides assurance to the Executive Committee that relevant items are being identified and reviewed and that items which are material in light of the Executive Committee’s risk appetite are reported to the Executive Committee. In addition, and where relevant, the Committees provide appropriate written reports detailing any issues for escalation to the Executive Committee. Individual Executive Committee members also provide positive assurance at the meetings that there are no other material items to report or escalate from their respective departments or from their reporting lines.

    Risk management objective and framework

    The Executive Committee adopts a ‘3 lines of defence’ model. Heads of Department and their staff have primary responsibility for managing and mitigating the risks specific to their area. The risk management practices and processes in place at this level constitute the ‘1st line of defence’.  The ‘2nd line of defence’ is held by the management committees supported by risk and control functions such as Fund Risk, Compliance and Operational & Business Risk functions. The management committees are responsible for oversight and monitoring of the key risks facing the Firm. The ‘3rd line of defence’ is provided by the regular, independent, risk based audits performed by external service providers on the direction of the non-executive Audit Committee and in accordance with an approved Internal Audit Charter. These provide independent assurance on the effectiveness of Brevan Howard’s risk management, control and governance processes.

    The Executive Committee is responsible for determining the risk appetite for the Firm. The Firm has established a risk management framework to identify, measure, monitor, report and mitigate risks. Risks identified through the operation of the risk management framework are assessed as part of the Firm’s ICAAP and Pillar 2 processes.

    The risk management framework sets out the responsibilities and escalation procedures for the identification, monitoring, and management of risks. Specific personnel are assigned responsibility for the risks across the Firm’s business units. The Executive Committee takes overall responsibility, with the assistance of risk, compliance and control functions, for identifying material risks to the Firm and implementing appropriate mitigating controls.

    Risks and mitigating controls are periodically reassessed, taking into account the Firm’s risk appetite. Actions are taken to improve the control framework when risks are identified which fall outside of the Firm’s risk appetite, or when weaknesses are identified in the Firm’s mitigating controls.

    The BHCML Audit Committee oversees the Brevan Howard Internal Audit framework (“IA framework”) whose purpose is to obtain and provide to the BHCML Board independent and objective assurance on the effectiveness of systems and controls environment and governance arrangements in place at Brevan Howard. Results and findings of audit reviews are presented to the BHCML Audit Committee and, where, appropriate, to any other committees or management boards including for example the Executive Committee.

    Internal Capital Adequacy Assessment Process (“ICAAP”)

    The Firm’s ICAAP includes an assessment of the design and performance of the internal controls in place to mitigate risks, the probability of the risk occurring, the potential financial and reputational impact, and the adequacy of the Firm’s capital base.

    The Executive Committee formally reviews and approves a finalised ICAAP document on at least an annual basis (or more frequently if there are material changes to the Firm’s business model and risk exposures). The Executive Committee, as part of its review of the ICAAP, sets the Firm’s risk appetite, validates that the Firm’s key material risks have been considered and assessed, and validates the stress testing scenarios.

    The Pillar 2 capital requirements of the Firm are determined through a range of methods including scenario analysis of extreme events and stress testing within the ICAAP.

    BIPRU 11.5.3R – Capital Resources

    As a BIPRU firm, the Firm maintains sufficient capital to meet its regulatory capital requirements and takes a prudent approach to the management of its capital base. The amount and type of capital resources of the Firm as at 31 March 2016 are set out in the table below:

    Table 1: Capital Resources as at 31 March 2016

    CAPITAL RESOURCES £m
    Tier One Capital Partnership capital
    Audited reserves
    18.70
    15.58
    Tier Two Capital 0.0
    Tier Three Capital 0.0
    Total Capital 34.29

    The adequacy of the capital held by the Firm is assessed regularly, and at least annually, as part of the ICAAP framework and is subject to approval by the Executive Committee. The most recent ICAAP (and Pillar 2) review took place on the 9th December 2016.

    As a BIPRU firm and in accordance with GENPRU 2.1.45R, the Firm is required to calculate its variable regulatory capital requirements as the higher of:

    • the sum of the market and credit risk requirement, and
    • the Fixed Overhead Requirement (“FOR”).

    The Firm has calculated its FOR in accordance with the rules and guidance set out in GENPRU 2.1.53R to GENPRU 2.1.59G, which amounts to £14.48m as at 31 March 2016. The credit and market risk capital requirements of the Firm amount to less than the FOR. Therefore, the overall Pillar 1 capital requirement of the Firm is the FOR of £14.48m.

    Table 2: Fixed Overhead Requirement as at 31 March 2016

    Fixed Overhead
    £m
    Risk Weight FOR
    £m
    Non-variable annual expenses 57.90 25% 14.48

    FCA Remuneration Code

    BIPRU 11.5.18R – Remuneration

    The Firm has adopted a remuneration policy that complies with the requirements the FCA’s Senior Management Arrangements, Systems and Controls Sourcebook (“SYSC”) – and most notably chapter SYSC 19C that sets out the BIPRU Remuneration Code and related guidance on proportionality.

    As a BIPRU firm (that has no other BIPRU firms within its corporate group), the Firm falls within proportionality level 3 under the BIPRU Remuneration Code regime. The Firm has concluded that, on the basis of its size and the nature, scale and complexity of its legal structure and business, it does not need to appoint a distinct remuneration committee. Instead, the Executive Committee of the Firm sets and oversees compliance with the Firm’s remuneration policy, including reviewing the terms of the policy on at least an annual basis.

    The Firm currently sets the variable remuneration of its staff in a manner which takes into account individual performance, performance of the individual’s business unit and the overall results of the Firm. As permitted for firms falling within proportionality level 3, the Firm takes into account the specific nature of its own activities (including the fee-based nature of its revenues) in conducting any ex-ante risk adjustments to awards of variable remuneration and, given the nature of its business, has disapplied the requirement under the BIPRU Remuneration Code to make ex-post risk adjustments.

    The Firm only has one “business area”, which is its investment management business. All of the Firm’s Code Staff fall into the “senior management” category of Code Staff (rather than the “risk taker” category) for the purposes of the BIPRU Remuneration Code. During the reporting year 2015, the Firm’s Code Staff totalled 17 of which 15 were deemed to be holding a ‘Significant Influence Function’ and 2 were performing a ‘Control Function’.

    The aggregate remuneration awarded to the Firm’s Code Staff during the financial year ending on 31 March 2016 in respect of the 2015 performance year was £8.31m.

  • HFSB Disclosure

    Investor Disclosure Statement and Explanatory Statement

    7 December 2016

    Brevan Howard Asset Management LLP (‘BHAM’) is a signatory to the standards set out by the Hedge Fund Standards Board (‘HSFB’). To conform to the Standards, BHAM is required to make a disclosure statement available to investors, which sets out those Standards with which BHAM does not fully comply, and an explanatory statement detailing why it does not comply. This document is the statement which fulfils both requirements.

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    Download full document: HFSB Disclosure Statement 2016