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REGULATORY DISCLAIMER

UK Stewardship Code

Introduction

As a firm authorised and regulated by the FCA, Albemarle Asset Management Limited is required to either disclose its compliance with or explain its non-compliance with the principles set out in the UK Financial Reporting Council’s Stewardship Code (the “Stewardship Code”).

The Code is a voluntary code and sets out a number of principles relating to engagement by investors with UK equity issuers. Investors that commit to the Code can either comply with it in full or choose not to comply with aspects of the Code, in which case they are required to explain their non-compliance.

Albemarle Asset Management Limited manages assets across a number of discretionary strategies, however the investment processes do not involve significant engagement with underlying investee companies in any of these strategies.
While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code.

Remuneration Disclosure

Small and Non-interconnected Investment Firm

Scope and application

The Financial Conduct Authority (“FCA”) in its Prudential sourcebook for MiFID Investment Firms (“MIFIDPRU”) sets out the detailed prudential requirements that apply to MiFID Regulated firms, and specifically MIFIDPRU 8 which sets out the public disclosure obligations regarding the Firm’s remuneration policy and practices with which the Firm must comply.

Albemarle Asset Management Limited (“AAM” / the “Firm”) is ‍authorised and regulated in the UK by the Financial Conduct Authority (the ‘FCA’) and classified under MIFIDPRU as a small and non-interconnected investment firm (“SNI” firm). As an SNI firm the Firm’s remuneration policies and practices are appropriate and proportionate to the nature, scale and complexity of the risks inherent in the business model and the activities of the Firm.

Business Strategy

The Firm’s remuneration policy is designed to be aligned with the business strategy, long-term objectives and the values and interests of the Firm and its clients within a framework of sound and well-controlled risk management. As a fund manager AAM’s overall objective is to achieve consistent performance for the Firm’s clients. AAM’s income is dependent upon its funds under management and therefore the profit available for distribution under this Policy is dependent upon AAM’s overall performance and, as such, the fulfilment of our objectives is interlinked with the best interests of our clients, which in turn is in line with this Policy.

Risk Appetite

The Firm as an SNI firm has a low risk appetite which is evidenced by the fact that: all of its clients are institutional, i.e. professional clients; no client money nor assets are held by the Firm; it has no ability to proprietary trade, so does not take principal positions with its own capital; and senior management are experienced industry professionals who are actively involved in the Firm’s day to day activity. The main categories of risk for AAM are market, operational, reputational, conduct, regulatory and people risk which are accounted for in the design of the remuneration structure.

Remuneration Policy and Practices

AAM is committed to excellence, teamwork, ethical behaviour and the pursuit of exceptional outcomes for its clients. From a remuneration perspective, this means that performance is determined through the assessment of various factors that relate to these values, and by making considered and informed decisions that reward effort, attitude and results. AAM is committed to encouraging equality, diversity and inclusion among our workforce and eliminating unlawful discrimination. We aim to create a diverse environment that allows each employee to be respected and supported. This extends to equality of pay.

Governance and Oversight

The Firm has not established a remuneration committee on the basis that this would be disproportionate for such a small, owner managed business that has no external investors or stakeholders. Nevertheless, the Firm’s remuneration arrangements are formally considered on an annual basis by the Firm’s management body without external consultants engaged to advise on our remuneration matters. The Firm’s Senior Managers fully acknowledge their responsibilities under the Code including their overriding responsibility to ensure that the Firm’s remuneration policies and practices:

are in line with the business strategy, objectives and long-term interests and values of the Firm;
are consistent with and promote sound and effective risk management and do not encourage risk-taking that exceeds the level of tolerated risk of the Firm;
are appropriate to attract, motivate and retain suitable staff;
are representative of the underlying performance of the business and do not reward individuals for poor performance;
include measures to avoid conflicts of interest.

In addition, AAM recognises that remuneration is a key component in how the Firm attracts, motivates and retains quality staff and sustains 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 greatest competitive advantage.

Assessment of performance

All employees are assessed annually using a standard performance appraisal process, including consideration to a range of non-financial and financial criteria ranging from compliance and conduct risks to the performance of business activities. Any performance being assessed is based entirely on professional ability and the process does not allow for any subjectivity or determination based on any protected characteristic, as defined in the 2010 Equality Act i.e., age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.

Characteristics of the remuneration policy and practices

Remuneration at AAM could be made up of fixed and variable components. The fixed component is set in line with market competitiveness at a level to attract and retain skilled staff. Variable remuneration is paid on a discretionary basis and takes into consideration the Firm’s financial performance, and the financial and non-financial performance of the individual in contributing to the Firm’s success. All staff members are eligible to receive variable remuneration.

The fixed and variable components of remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to enable the operation of a fully flexible policy on variable remuneration. This allows for the possibility of paying no variable remuneration component, which the Firm would do in certain situations, such as where the Firm’s profitability performance is constrained, or where there is a risk that the Firm may not be able to meet its capital or liquidity regulatory requirements.

Quantitative Remuneration Disclosures

Details of aggregate remuneration paid to all staff during the year 1st January to 31st December 2022

are £851,500 of fixed remuneration and £26,000 of variable remuneration making the total remuneration paid for the year of £877,500 All variable remuneration is delivered in cash and performance adjustment is not applied.

Stewardship Code Disclosure

Introduction – The Stewardship Code (“the Code”) was published by the Financial Reporting Council (“FRC”), the UK’s independent regulator responsible for promoting high quality corporate governance and reporting in order to foster investment. The Code sets out good practice for institutional investors in their dealings with the companies in which they have invested.

Disclosure obligations – The Financial Conduct Authority’s (“FCA”) regulations outline a firm’s obligations in relation to the Code and for firms who manage assets for corporate professional clients to disclose to these clients the nature of their commitment to the Code, or where it does not commit to the Code its alternate business strategy. Although the Firm recognises the aims and benefits of the Code the Firm’s investment strategy is such that it does not engage directly with companies and therefore the Code in the context of Firm’s investment strategy does not apply and the Firm does not consider that its clients expect such engagement. It is however important to note that the Firm’s investment strategy is specifically structured to maximise investment gains and enhance shareholder value and that it constantly monitors investments, would act collectively with other institutional investors where appropriate and has developed internal policies and procedures for managing conflicts of interest. This non commit disclosure fully encompasses the Firm’s regulatory obligations in complying with the FRC’s Stewardship Code and the FCA’s regulatory requirements

EU SHAREHOLDER RIGHTS DIRECTIVE II

Engagement Policy

Purpose

This Engagement Policy sets out how Albemarle Asset Management Limited (“Albemarle”) undertakes stewardship and shareholder engagement for its discretionary equity investment strategies. This policy has been written in accordance with the requirements of Directive (EU) 2017/828 and its implementing measures (together, the “Shareholder Rights Directive II”).

Introduction

Albemarle Asset Management UK Limited was founded in 2003 in London. In 2007, after a change in the shareholder base, the company started its fund management business.

Albemarle interprets its fiduciary duty to its clients as an effort to maximise the value of their investments over the long-term as well as the short-term, and fulfilment of its stewardship responsibilities not only by participating in shareholder votes, but also by actively engaging with company management. Albemarle believes that faster growth and higher long-term returns can be achieved by implementing sustainable business practices in its own business, as well as in the companies that it invests in.

Albemarle has developed a deep understanding of the complex relationship between business, industry and society and the increasing number of feedback loops between them. It recognises that companies in which it invests are increasingly impacted by technological and regulatory changes, as well as changes in consumer behaviour. It therefore seeks to incorporate an assessment of material environmental and social issues, as well as the quality of governance into its investment research.

How Albemarle monitors investee companies

Albemarle investment professionals monitor the public statements of investee companies through financial information platforms like Bloomberg, financial statements and regulatory announcements, reports & accounts, results meetings and capital markets days.

Meetings with the management teams of the companies in which it invests, through one to one meetings and site visits, are an integral part of Albemarle’s fundamental investment process. Albemarle believes a regular dialogue with investee companies plays an important role in stewardship.

Albemarle collects information about the ESG issues discussed in meetings with company management.

During meetings with company management, investment professionals may discuss a variety of topics, such as operating performance, financial performance, management succession, reports and disclosure, proxy proposals, ESG issues or other matters that may present a potential material risk to a company’s long-term financial performance.

Albemarle’s investment professionals can utilise the following tools and resources to help monitor the financial and non-financial performance and risk exposure of investee companies:

Company financial reports, regulatory filings, press releases and presentations;
Information platforms including Bloomberg;
Industry conferences and trade shows;
Sell-side research;
Research reports; and
Data from ESG research providers

Strategy and capital structure

Albemarle recognises that minority equity investors do not have control over a company’s strategy, capital allocation or capital structure. Decision-making authority lies with the company’s management and ultimately its board of directors, and shareholders have influence through the periodic election or re-election of board members or through votes on specific resolutions at annual or extraordinary general meetings. Decisions that can have a material impact on long-term shareholder value can be made without a shareholder vote via an AGM or EGM, and in any case there may be pre-existing shareholders with effective or majority voting control.

Consequently, Albemarle’s approach is proactive. Investment opportunities (e.g. price action, regulatory changes, changes in economic or political outlook etc.) do sometimes arise when management teams are unavailable (e.g. in close period), but generally Albemarle’s investment professionals meet the management team of a company before investing in it, as well as scrutinising their public statements. This allows Albemarle’s investment professionals to understand management’s strategy and their thought processes around the use of capital and financial leverage. Albemarle’s investment professionals monitor the strategy and capital structure of investee companies, analysing financial statements as they are produced, assessing execution of a stated strategy, and paying close attention to events like capital investment decisions, shareholder returns, acquisitions and divestments. They also seek to understand the important features of capital structure like the term structure of borrowing, access to working capital and financial obligations that may not appear in their entirety on the balance sheet, and monitor changes in them over time. Albemarle’s investment professionals pay close attention to changes in governance structures (board composition, voting rights, pre-emption rights etc) and management incentives. The aim is to understand Albemarle’s ability to influence corporate decision-making and whether the interests of management are aligned with those of Albemarle’s clients. The interplay between governance and environmental and social issues is discussed separately in the next section, but in practice Albemarle sees them as entirely interlinked with decisions about strategy and capital.

Environmental, social and governance (“ESG”) issues

Albemarle’s sustainable investment philosophy stems from a belief that long-term structural changes such as globalisation, inequality and climate change present both financial risks and market opportunities for the companies that it invests in. Albemarle incorporates an assessment of material environmental and social issues, as well as the quality of governance practices, into its investment research and these also inform its stewardship activities. Albemarle believes that the materiality of individual ESG factors differ by company, sector, and region, and consequently does not apply a “one size fits all” approach to risk assessment. Through the establishment of a robust analytical framework, training, risk assessment and engagement, Albemarle’s investment professionals aim to systematically incorporate ESG.

How Albemarle engages with investee companies

The decision to engage with the management of an investee company is primarily based on what Albemarle investment professionals believe will maximise shareholder value in the long-term, specifically the value of its clients’ investments. These engagements are undertaken by the same Albemarle investment professionals that perform financial analysis, as part of integrated ESG research. Investment professionals may engage with company management on a variety of issues, including ESG matters that present a potential material risk to a company’s financial performance. On occasion, companies seek Albemarle’s input on a range of issues, and Albemarle investment professionals use such opportunities to work with companies and, when permitted by and consistent with local regulation, may play an active role in seeking to effect changes that maximise shareholder value. Albemarle believes that its investment professionals are in the best position to evaluate the potential impact that ESG issues or the outcome of a given proposal will have on long-term shareholder value. As such, all of Albemarle’s engagement activities are the responsibility of investment professionals and are fully integrated into its investment processes, rather than being delegated to stewardship specialists. The normal methods through which Albemarle engages with companies are:

ongoing dialogues with the company management through regular meetings, visits, and telephone calls during which Albemarle investment professionals discuss and pose questions on operational, strategic, and other management issues and, where appropriate, will offer their own opinions and comments, based on their fiduciary duty to Albemarle’s clients; and
proxy voting; where clients delegate the responsibility to vote proxies, Albemarle, as a fiduciary, is obligated to vote proxies in the best interests of its clients.

Communication with other shareholders

Albemarle’s investment professionals regularly engage with companies seeking to improve shareholder value, specifically the value of clients’ investments. Engagement activities are generally conducted on a one-to-one basis with company management or members of the board of directors. Collaborating with other investors can add value on specific issues and on rare occasions, Albemarle may be willing to participate in collective engagements where it believes it is in its clients’ best interests. Key factors Albemarle takes into consideration in deciding whether to participate in collective engagement include whether:

the engagement objectives of the collective group are consistent with Albemarle’s objectives;
engaging as a part of a group will be more successful than engaging individually; and
engaging as a group could be interpreted as having “acted in concert” with another financial institution. If Albemarle’s Legal & Compliance team believes that this may be the case Albemarle will not participate.

Conflicts

Albemarle has conflicts of interest policies that apply to its engagement and proxy voting activity.

Transparency

Annual implementation of this Engagement Policy

If applicable, Albemarle will annually disclose how this Engagement Policy has been implemented, including:

a description of its voting behaviour;
an explanation of the most significant votes;
the use of the services of proxy advisors; and
a description of how Albemarle has cast votes in the general meetings of companies in which it holds shares on behalf of its clients.

Additional disclosures to institutional clients

As required by applicable law, Albemarle will provide certain of its institutional clients with additional disclosures regarding how its investment strategy:

complies with the arrangements in place with those clients; and
contributes to the medium to long-term performance of the assets of that institutional investor

Review

The Engagement Policy is reviewed and approved annually or more frequently as needed and is publicly available on Albemarle’s website.