Capital Dynamics logo


UK Stewardship Code Disclosure Capital Dynamics Limited

The FCA’s Conduct of Business Sourcebook rule 2.2.3R requires Capital Dynamics Limited (“CDL”) to make a disclosure regarding the nature of its commitment to the UK Stewardship Code (“the Code”) issued by the Financial Reporting Council published in 2010.

The Code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. It sets out good practice on engagement with investee companies and is to be applied by firms on a "comply or explain" basis. The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may judge some of the principles and guidance to be disproportionate. It is of course legitimate for some asset managers not to engage with companies, depending on their investment strategy, and in such cases firms are required to explain why it is not appropriate to comply with a particular principle.

The seven principles of the Code are that institutional investors should:

  1. Publicly disclose their policy on how they will discharge their stewardship responsibilities;
  2. Have and publicly disclose a robust policy on managing conflicts of interest in relation to stewardship;
  3. Monitor their investee companies;
  4. Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value;
  5. Be willing to act collectively with other investors where appropriate;
  6. Have a clear policy on voting and disclosure of voting activity; and,
  7. Report periodically on their stewardship and voting activities and obtain an audit opinion on engagement and voting processes.

We note the contents of the 2020 Stewardship Code and are monitoring communications from our regulator, the FCA, on how they intend to impose further stewardship requirements on asset managers as the new Code takes effect. The FCA has confirmed it will not be imposing further stewardship related requirements on asset managers at this point. Therefore, whilst the firm readily supports the objectives of the Code, it believes that it is not appropriate to conform to the Code until such time as the FCA issues further guidance. The firm is currently in the process of implementing relevant aspects of the Sustainability Finance Disclosure Regulation (SFDR), which we believe is similar in scope and intent to the Stewardship Code.

February 2021

Pillar 3 Disclosures

Capital Dynamics Limited
As of 31 December 2020

1. Overview


The Capital Requirements Directive (CRD) is the framework for implementing Basel II and Basel III in the European Union. Basel II and Basel III implement a risk sensitive framework for the calculation of regulatory capital and capital adequacy.

The CRD consists of three ‘pillars’: Pillar 1 sets out the minimum capital requirements that entities are required to meet for credit, market and operational risk. For Pillar 2, firms and supervisors take a view on whether a firm should hold additional capital against risks not covered in Pillar 1 and to take action accordingly within the Internal Capital Adequacy Assessment Process (ICAAP). Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2) with the aim of improving market discipline by requiring firms to publish certain details of their risks, capital and risk management.

In the United Kingdom, the Financial Conduct Authority (FCA) introduced Pillar 3 by duplicating the CRD articles and annexes to create Chapter 11 – Disclosure (Pillar 3) of the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). Additionally, Capital Dynamics Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) as a full-scope UK Alternative Investment Fund Manager, therefore is categorised by the FCA for Prudential Regulatory purposes both as a Collective Portfolio Management Investment firm (CPMI firm) and a BIPRU firm..

Basis of disclosures

In accordance with the requirements of Chapter 11 of BIPRU, the disclosures included in this document relate to Capital Dynamics Limited. The disclosures cover both the qualitative and quantitative requirements.

Capital Dynamics Limited may omit information it deems as immaterial, in accordance with the rules. “Materiality” is based on the criterion that the omission or misstatement of any information would be likely to change or influence the decision of a reader relying on that information. Accordingly, where Capital Dynamics Limited has considered an item to be immaterial, such item has not been disclosed in this document.

In addition, if the required information is deemed to be proprietary or confidential then Capital Dynamics Limited may take the decision to exclude it from the disclosure. In Capital Dynamics Limited’s view, proprietary information is that which, if it were shared, would undermine its competitive position. Information is considered to be confidential where there are obligations binding Capital Dynamics Limited to confidentiality with our customers, suppliers or counterparties. Where information is omitted for either of these reasons this is stated in the relevant section of the disclosure, along with the jurisdiction.

Frequency of disclosures

The disclosures are required to be made on an annual basis at a minimum and if appropriate some disclosures will be made more frequently. Capital Dynamics Limited has an Accounting Reference Date of 31 December. These disclosures are made at this date.   

Verification, media and location

These disclosures have been put together to explain the basis of preparation and disclosure of certain capital requirements and provide information about the management of certain risks and for no other purposes. These disclosures are not subject to audit, they do not constitute any form of audited financial statement and have been produced solely for the purposes of satisfying Pillar 3 requirements.

The Capital Dynamics Limited Board is responsible for the company’s system of internal control and for reviewing its effectiveness. Such a system can provide only reasonable and not absolute assurance against material financial misstatement or loss and is designed to mitigate, not eliminate, risk.

These disclosures are published on the Capital Dynamics Group corporate website (

2. Risk management framework

Capital Dynamics Limited believes that active and effective risk management is a business imperative and it is regarded as a core competence by clients, consultants, regulators, counterparties and other interested parties.

Approach to risk management

Capital Dynamics Limited’s approach to risk management builds on the following structures:

Capital Dynamics Limited Board

Capital Dynamics Limited’s Board of Director’s has the following responsibilities:

  • Authority to manage the business, including corporate governance, internal controls and risk, is the responsibility of the Capital Dynamics Limited Board
  • The Board is responsible for ensuring that the internal control system remains effective.
  • The Board delegates primary responsibility for the risk and controls framework and the independent monitoring and reporting of risk and controls to the Group Accountant and the accounts team, as well as the heads of Business Development, Investment Management and Portfolio Servicing and Compliance (The ‘Capital Dynamics Limited senior management’)
  • The Board must ensure continued individual responsibility and accountability across the firm, supported by guidance and training as required.
  • The Board is supported by the independent monitoring and advice provided by the Compliance department as well as the External Auditors.

Capital Dynamics Limited senior management

The role of the senior management:

  • to encourage highest standards in financial and regulatory reporting, risk management, internal controls and integrity
  • the ongoing monitoring and review of Capital Dynamics Limited processes to ensure adequacy

Compliance supports the Finance Director with the monitoring and reporting of risks and controls. Significant risk and control issues are reported to the Board of Directors either by the relevant business head or by the Finance Director.

Risk management systems and techniques

Risk Assessment and Identification

Change in every aspect of our business and the external environment is a key driver of risk.

Change may impact the potential occurrence or potential magnitude of events relating to existing risks or may result in new or emerging risks. Different approaches may be used for the assessment of risk depending on the type of risk faced and the evidence available to assess the risk. These approaches may be used in combination or isolation and include qualitative and quantitative assessments.

Risk Mitigation

Like any investment management firm we are exposed to a range of risks. These risks if not managed properly, increase the possibility of the company not being able to meet its objectives.

There are a variety of techniques that are used to mitigate risks, which may be used in isolation or in combination depending on the nature of the risk. These techniques include use of controls, outsourcing, contingency planning and insurance. 

Risk Monitoring and Reporting

Risks are managed in a variety of different ways, depending on the nature of the risk and the areas potentially affected to ensure that wherever appropriate the consequences are mitigated.

Monitoring and communication are key to an effective risk management framework.

Key risks faced

The key risk types faced which are relevant to this Pillar 3 disclosure are as follows:

Operational risk

Operational risk is the risk resulting from inadequate or failed internal processes, people and systems or from external events, including legal, regulatory and compliance risk.

Capital Dynamics Limited is aware that operational risk can never be eliminated, but seeks to minimise the probability and impact of operational events, through the governance structure described, with frameworks, policies and procedures to support it.

  • Core responsibility for the management of this risk lies with senior management (heads of business and Group Accountant as described above).
  • Risk oversight and challenge is provided to the Board via the Group Accountant and Compliance.

Credit risk

Credit risk, is the risk of loss if counterparty fails to perform its financial obligations. Credit risk exposures are supported by prudent policies on all aspects of credit risk including treasury activities, limit setting and monitoring.

Oversight for credit risk is provided via the Group Controller.

Market risk

Market risk is the risk that arises from fluctuations in values of, or income from, assets or from changes in the value of interest or exchange rates.

Foreign exchange movements affect non Sterling cash balances and revenues. Market risk is actively monitored and managed. Capital Dynamics Limited’s FCA permission does not allow it to undertake “trading” activities. Consequently, Market Risk covered here is limited to non-trading activities.

Liquidity risk

Liquidity risk is the risk that the Company, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.

The Group’s liquidity policy is to maintain sufficient liquidity to cover any cash flow funding, meeting all obligations as they fall due.

Business risk

Any risk arising from changes in the business, including the risk that the firm may not be able to carry out its business plan and its desired strategy.

This includes exposure to a wide range of macro-economic, geopolitical, industrial, regulatory and other external risks that might deflect the company from its strategy and business plan.

Internal Capital Adequacy Assessment Process (ICAAP) – Pillar 2 Requirement

Capital Dynamics Limited reviews its ICAAP on an annual basis, or more frequently if there is a fundamental change to our business or the environment in which we operate. This is an internal process where the firm must:

  • carry out regular assessment of types and amounts of capital required to cover the risks to which it is exposed
  • identify the sources of risk vs. its ability to meet its liabilities
  • conduct stress and scenario tests
  • ensure that processes, strategies and systems required are appropriate and proportionate to the nature, scale and complexity of the firm’s activities

Operational risk

The operational risk analysis focuses on modeling of key risk scenarios for the Company. Under Pillar 1, Operational Risk is implied by Capital Dynamics Limited’s Fixed Overhead Requirement which in turn is the driver for Capital Dynamics Limited’s Pillar 1 Capital Resource Requirements.

Capital Dynamics Limited is also identified under the Alternative Investment Fund Managers Directive (“AIFMD”) as a CPMI firm and is also able to meet the test contained in IPRU (INV) 11.2.1(2)(a) which requires it to hold regulatory capital based on the higher of its own funds requirement based on fixed overheads and its funds under management requirement plus a loading to account for professional liability. Please see section 5 for further details.

Credit risk

The Company is not considered to have a significant credit risk as most of the Company’s income is received from its subsidiary Capital Dynamics General Partners Limited and from management fees for unauthorised unit trusts. The fees receivable are based on the terms of the Limited Partnership or Unit Trust Agreements. Drawdowns from the Investors are made to meet the obligations of the Funds. The majority of the Funds’ Investors are large institutional investors.

Market risk

The Company is not considered to have a significant interest rate risk. It is the Company’s policy only to hold sufficient cash assets receivable within one month in order to enable it to meet its minimum FCA liquid capital requirements as well as to fund short term requirements. Therefore, interest earnings are minimal.

The Company holds cash balances denominated in currencies other than GBP, the base currency of the Company. Consequently, the Company is exposed to currency risk as the cash balances held in other currencies will fluctuate due to changes in exchange rates. The Company accepts this currency risk and consequently does not maintain any policy to enter into any currency hedging transactions.

Liquidity risk

Capital Dynamics Limited uses a range of liquidity risk assessments and stress tests to assess our ability to always meet our obligations as they fall due.

Business risk

Business risk is assessed through consideration of the threat to Capital Dynamics Limited’s capital base and strategic plans of a severe, sustained recession. 

There are individual assessments of capital required for specific risk types. In accordance with current best practice, there is also an assessment of the capital required to ensure an orderly wind-up of the Company if it is no longer viable. Capital Dynamics Limited’s ICAAP and Pillar 2 assessment has not identified capital to be held over and above its Pillar 1 requirement, which is driven by its AIFMD requirement. See section 5 for details..

3. Basis of consolidation

Accounting consolidation

The consolidation of the financial statements is based upon the inclusion of all entities controlled by Capital Dynamics Limited prepared to 31 December each year. Control is achieved where Capital Dynamics Limited has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The consolidated statutory financial statements include all subsidiary undertakings which, in the opinion of the Board of Directors, principally affect the consolidated profits or assets of the Capital Dynamics Limited Group.

Regulatory consolidation

For regulatory purposes, this is not on the same basis as above. Entities excluded from the regulatory consolidation:

  • Capital Dynamics General Partners Limited
  • CD Red Rose GP Limited
  • CD Associates CEI (UK) GP Limited
  • CD Associates CEI (UK) GP II Limited
  • Capital Dynamics UK GP I LLP
  • Capital Dynamics UK GP II LLP
  • Capital Dynamics UK GP III LLP
  • Capital Dynamics UK GP IV LLP
  • Capital Dynamics UK GP V LLP
  • Capital Dynamics SGR S.P.A (Italy)
  • Capital Dynamics UK Member I Limited

4. Capital resources

Tier 1 capital

Capital Dynamics Limited’s regulatory capital is comprised entirely of Tier 1 capital which is the highest quality of regulatory capital in terms of permanence and loss absorbency. There are no deductions to retained earnings, as the company does not operate a defined benefit pension.  

Tier 1 capital at 31 December 2020 totals £2,196,000, comprising £1,200,000 ordinary share capital and £1,907,121 retained earnings. For the avoidance of doubt, this figure includes audited retained earnings up to and including the year ended 31 December 2020.

Tier 2 capital

Tier 2 capital is a firm’s supplementary capital and consists of revaluation reserves, general provisions and some classes of subordinated debt. 

As at 31 December 2020, the Company had no revaluation reserves, subordinated debt or general provisions and therefore had no Tier 2 capital.

Tier 3 capital

Tier 3 brings together shorter term debt capital and less permanent reserves and may only be used to meet regulatory capital requirements arising from market risk in the trading book.

The Company did not hold any Tier 3 capital as at 31 December 2020.

Tier 1 GBP
Ordinary share capital 1,200,000
Retained earnings 1,907,121
Total 3,107,121
Deductions from Tier 1 -
Tier 1 after deductions 3,107,121
Deductions from Tier 2 -
Total capital resources 3,107,121

During the period, Capital Dynamics Limited complied at all times with the externally imposed regulatory capital requirements.

5. Capital adequacy

As part of the assessment of the adequacy of its capital, the Company considers its risk appetite, the key risks facing the Company and the management strategies in place for dealing with such risks. This is included within the Company’s Internal Capital Adequacy Assessment Process which is reviewed by the Capital Dynamics Limited Board. 

It is Capital Dynamics Limited’s policy to have sufficient capital to:

  • meet regulatory requirements;
  • keep an appropriate credit standing with counterparties; and
  • maintain sufficient liquid funds to meet working capital requirements.

Calculation of the Company’s capital resources requirement

The capital resource requirement for Capital Dynamics Limited is the higher of the capital required under the CRD  contained in the FCA’s GENPRU/BIRPU rules and that of the AIFMD in included in the FCA’s Interim Prudential sourcebook for Investment Businesses (“IPRUINV”).

GENPRU/BIRPU Pillar 1 Capital Requirement.

The capital resources requirement of Capital Dynamics Limited for regulatory reporting purposes takes into consideration the credit risk, market risk and operational risk capital requirements. 

As a BIPRU Limited Licence €125K firm, Capital Dynamics Limited’s Pillar 1 capital resource requirement is determined at 31 December 2020 as being the highest of: 

  • Base capital requirement of €125K; or
  • Fixed Overhead Requirement (FOR); or
  • The sum of Credit and Market Risk Requirements
Credit risk

Credit risk is not considered significant to the Company, as the vast majority of the revenues are received from other companies under common control of Capital Dynamics Limited’s ultimate parent.

The revenue is generated from the provision of advisory services to Capital Dynamics Limited’s fund of fund investments, which is paid by the fund.  Furthermore, investors in the fund are large institutions, which help to mitigate any credit risk.

Credit risk, as determined under Pillar 1, was less than the level that was considered material, 1,053,000, as at 31 December 2020.

Market risk

Market risk, as determined under Pillar 1, was less than the level that was considered material, £366,000, as at 31 December 2020.

Operational risk / Fixed Overhead Requirement (FOR)

For the year ended 31 December 2020 the amount required to be held by the Company to meet the Fixed Overhead Requirement (FOR) was £1,390,000. The Company considers this to be an acceptable alternative calculation for operational risk.

It is Capital Dynamics Limited’s experience that its GENPRU/BIPRU capital requirement normally consists of the FOR, although market and credit risks are reviewed periodically. 

AIFMD Pillar 1 Capital Requirement

As a CPMI firm, Capital Dynamics Limited is required to meet both an Own Funds and a Liquid Assets capital requirement. The Own Funds capital requirement is based upon the higher of:

a) the funds under management requirement  (base capital requirement of €125,000 plus 0.02% of funds under management exceeding €250 million (where funds under management is calculated as the sum of all AIFs managed by Capital Dynamics’s);


b) FOR which is calculated as 25% of Capital Dynamics’s annual fixed overheads;

Plus either:

c) Professional negligence capital requirement which is calculated as 0.01% of AIFs funds under management;


d) PII capital requirement which equates to the policy excess on an AIFMD compliant PII policy.

The most onerous Own Funds capital requirement for Capital Dynamics Limited is the AIFMD requirement of £1,390,000  which has been calculated as the sum of the FOR at stage (b) plus the professional negligence capital requirement calculated at stage (c).

For its Liquid Assets Capital requirement, Capital Dynamics Limited is required to hold liquid assets which exceed its own funds based upon FOR plus its professional negligence capital requirement. Liquid capital represents assets that are readily convertible to cash within one month and have not been invested in speculative positions.

As at the reporting date Capital Dynamics Limited held a surplus of circa £1,396,121 over its Own Funds requirement and £1,076,000 over its liquid assets requirement.

The firm has concluded that its regulatory capital, all of which is represented by Tier 1 capital is sufficient to meet its Pillar1 and Pillar 2 requirements.

6. Credit risk & dilution risk

Past due and impaired

A financial asset is past due when the counterparty has failed to make a payment when contractually due. An exposure is classified as impaired (the carrying value exceeds the amount to be recovered through use or sale) or non-performing (principal, interest or fees remain unpaid more than 90 days after the due date) when, following review, there are indications that the likelihood of full repayment is in doubt. These indications may include, but not be restricted to: non-payment of interest or a fall in credit worthiness. Capital Dynamics Limited does not have any past due or impaired financial assets.

Provisions against financial assets

Other debtors consist mainly of fee debtors, which arise principally within the Company’s institutional business and amounts are monitored regularly by the Accounts team. 

Capital Dynamics Limited does not have any fee debtors that are past due (i.e. items that are past their contractually agreed settlement date) and none that are considered to be impaired as at 31 December 20.

Factors considered in determining whether impairment has taken place include how many days past the due date a receivable is, deterioration in the credit quality of a counterparty, and knowledge of specific events that could influence a debtor’s ability to repay an amount due.

7. Remuneration

Capital Dynamics Limited’s compensation structure is designed to ensure that it is consistent with, and promotes sound and effective risk management and does not encourage risk-taking which is inconsistent with our risk profile. The compensation structure seeks to reward staff for long term-performance. The Compensation Committee is responsible for reviewing the firm’s compensation policies, practices and principles in compliance with regulatory requirements and, where appropriate, has applied a level of proportionality to the remuneration policy and structures. This is undertaken on at least an annual basis.

Compensation structures are typically comprised of a base salary and discretionary annual bonus. In making remuneration decisions, the Compensation Committee has regard to all aspects of performance including financial and non-financial criteria and any potentially excessive risk taking. Non-financial criteria includes areas such as compliance with internal policies and procedures. The aspects of financial criteria include contributions to the performance of Capital Dynamics Limited and its managed funds.

For the purposes of the remuneration disclosures required by BIRPU 11.5.18R, Capital Dynamics Limited has identified staff who have a material impact on the risk profile of the firm (“Code Staff”) in a manner that is appropriate to its size, internal organization and the nature, scope and complexity of its activities. Code Staff include employees of Capital Dynamics Limited and its affiliate companies. 

During 2020, the following remuneration amounts were paid to 24 Code Staff.

  2020 Senior Management 2020 Other Code Staff
Total remuneration £2,289,332 £10,868,184

As of April 2021

Information Disclosure regarding Special Business Activities for Qualified Institutional Investors, etc.

Pursuant to the Financial Instruments and Exchange Act of Japan ("FIEA"), effective as of March 1, 2016, a person who has submitted a notification regarding Specially Permitted Businesses for Qualified Institutional Investors, etc. is required to make available to the public the following information:

(i) Form 20-2 (Article 63, Paragraph 6 of the FIEA); and
(ii) Form 21-3 (Article 63-4, Paragraph 3 of FIEA)

Information on the following entities can be obtained upon request:

  1. Capital Dynamics General Partners Limited
  2. Capital Dynamics General Partner Sarl
  3. Capital Dynamics CEI GP S.a.r.l
  4. Capital Dynamics GP I S.a.r.l

Please directly contact us by e-mail with any questions: