Ashmore Investment Management Limited
Investment Firm Prudential Regime (IFPR) Disclosure
For the year ended 30 June 2024
Contents
1. | Overview | 3 | |
1.1. Basis and frequency of disclosure | 3 | ||
1.2. Media and location of disclosures | 3 | ||
1.3. | Validation and sign-off | 3 | |
1.4. | Group structure | 4 | |
2. Risk management objectives and policies | 5 | ||
2.1. Risk management framework and governance | 5 | ||
2.2. AIML risk appetite statement (RAS) | 7 | ||
2.3. Principal risks and their management | 7 | ||
2.4. Own funds, Concentration risk and Liquidity requirements | 9 | ||
3. | Governance arrangements | 10 | |
3.1. | Governance framework | 10 | |
3.2. | AIML Board Committees | 11 | |
3.3. | Directorships | 12 | |
3.4. | Diversity and inclusion | 12 | |
4. | Own funds | 13 | |
4.1. Composition of regulatory own funds | 13 | ||
4.2. Reconciliation of own funds to the audited financial statements | 14 | ||
4.3. Main features of own instruments | 14 | ||
5. Own funds regulatory requirements | 15 | ||
5.1. | Own funds requirement | 15 | |
5.2. | Liquid assets requirement | 16 | |
5.3. Approach to assessing OFAR | 16 | ||
5.4. | OFAR compliance | 17 | |
6. Remuneration policy and practices | 18 | ||
6.1. | Remuneration Committee | 18 | |
6.2. Remuneration policy and principles | 18 | ||
6.3. Components of remuneration and ex-ante risk adjustment | 19 | ||
6.4. Material risk takers and ex-post risk adjustment | 20 | ||
6.5. Guaranteed variable remuneration and termination payments | 21 | ||
6.6. | Quantitative disclosure | 21 |
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1. Overview
The purpose of this document is to set out the Investment Firm Prudential Regime ("IFPR") disclosure for Ashmore Investment Management Limited ("AIML" or "the Firm") in accordance with the Financial Conduct Authority ("FCA") Prudential Sourcebook for Investment Firms chapter 8 ("MIFIDPRU 8").
AIML is a wholly owned subsidiary of Ashmore Group plc ("Ashmore", the "Group") and a MIFIDPRU Investment Firm authorised and regulated by the FCA (Firm Reference Number 185402).
The prudential disclosures in this document are solely in respect of AIML for the financial year ended 30 June 2024.
1.1. Basis and frequency of disclosure
AIML is required to publish disclosures in accordance with the provisions outlined in MIFIDPRU 8. Under IFPR, AIML is categorised as a non-small non-interconnected ("non-SNI") MIFIDPRU investment firm.
The prudential disclosures for the Firm are published at least annually and the frequency of disclosure is assessed on an ongoing basis considering any material changes in either the nature or scale of the Firm's or Ashmore's business operations.
The prudential disclosures as at 30 June 2024 (the "reference date") are consistent with the published financial statements for the Firm. The disclosed information is proportionate to AIML's size and organisation, and to the nature, scope, and complexity of its business activities.
AIML meets the conditions under MIFIDPRU 7.1.4R. The Firm's average assets over the preceding four-year period are less than £300 million and the Firm has no trading book business or derivative exposures. Therefore, the disclosure obligations relating to Investment Policy set out in MIFIDPRU 8.7 do not apply.
1.2. Media and location of disclosures
These prudential disclosures are published on the Ashmore website: https://ir.ashmoregroup.com/corporate-governance
1.3. Validation and sign-off
This document has been subject to internal verification and approved by the AIML Board ("Board") to ensure compliance with the regulatory requirements contained in MIFIDPRU 8. The prudential disclosures contained in this document are not required to be verified by an external auditor.
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1.4. Group structure
AIML is a wholly owned subsidiary of Ashmore Group plc, a UK parent company listed on the London Stock Exchange since 2006. Ashmore is a specialist Emerging Markets investment manager and AIML is responsible for managing the majority of Ashmore's assets under management. The Firm therefore plays an important role in the execution of the Group's strategy, which is focused on growing and diversifying Ashmore's business and creating value for its clients and shareholders.
As at 30 June 2024, AIML managed funds totalling £43.1bn of assets under management ("AuM"), equivalent to 87% of Ashmore's total AuM. The funds are managed across Ashmore's Emerging Markets investment themes, described below.
External debt
Invests in debt instruments issued by sovereigns and quasi-sovereigns and denominated in foreign currencies.
Local currency
Invests in local currencies and local currency-denominated instruments issued by sovereigns, quasi-sovereigns and companies.
Corporate debt
Invests in debt instruments issued by public and private sector companies.
Blended debt
Asset allocation across the external debt, local currency and corporate debt investment themes, measured against tailor-made blended indices.
Equities
Invests in equity and equity- related instruments including global, regional, country, small cap, frontier and multi-asset opportunities.
Alternatives
Invests in private equity, healthcare, infrastructure, special situations, distressed debt and real estate opportunities.
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2. Risk management objectives and policies
AIML recognises that its strategy and business model have inherent risks, with the potential for harm to the firm, its clients and the markets in which it operates. Therefore, the Firm identifies, evaluates and manages principal and emerging risks through an established and effective internal control framework supported by an embedded risk management culture.
Potential for harm
The material potential harms associated with AIML's business are as follows:
- Harm to clients: this could result from operational incidents or errors resulting in disruption of investment management activities for a fund or investors in a fund.
- Harm to firm: the Firm may be required to compensate clients due to operational incidents or errors, suffer reputational damage and loss of clients and revenue.
- Harm to market: a material detriment or disruption to the public markets in which AIML operates could arise through failure to meet expected market standards, obligations to counterparties or through a material regulatory breach or evidence of market abuse which could undermine the reputation of the asset management industry.
2.1. Risk management framework and governance
Ashmore's strategy, business model and related processes and controls includes the investment activity and operations conducted by AIML. As such, Ashmore's systems of internal controls and risk management encompass AIML related activities. Accordingly, the management of risk within AIML forms part of the overall Ashmore risk management framework, which sets out to identify, monitor, report and manage risk throughout the Group. The framework is designed to embed an awareness of risk into all strategic and operational business decisions.
Ashmore's risk management structure is shown below.
Ashmore Group plc
Board ("Ashmore
Board")
Executive Directors
RCC Members
The Ashmore Board is ultimately responsible for risk management including setting and monitoring the Group's risk appetite, which determines the types and levels of risks that the Group is prepared to take in pursuit of its strategic objectives. The Ashmore Board has delegated authority to carry out day-to-day functions to Executive Directors.
The Executive Directors have established a number of government bodies, as shown in the corporate governance framework. One such body is the Risk and Compliance Committee ("RCC"), which embeds a sound risk management and internal control environment and assesses the impact of the Group's activities on its regulatory and operational exposures.
Chief Executive Officer | Group Head of IT | Head of Internal Audit |
Group Finance Director | Head of Fund Operations | Group Head of Finance |
Group Head of Compliance | Head of Investment Operations | Group Head of HR |
Head of Risk Management | Group Head of Distribution | Group General Counsel |
Ashmore's system of internal control is integrated into its strategy and business model and is embedded within its routine business processes and operations, and a strong control culture is combined with clear management responsibility and accountability for individual controls.
The RCC meets monthly and is responsible for monitoring and assessing all relevant matters regarding risk, compliance and related internal controls.
The RCC is chaired by the Head of Risk Management and Control, and the other members are the Group Chief Executive Officer ("Group CEO"), the Group Finance Director, the Group General Counsel and Group Head of Compliance, the Group Head of Information Technology, the Head of Fund
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Operations, the Head of Investment Operations, the Group Head of Human Resources, the Group Head of Finance, the Group Head of Distribution and the Head of Internal Audit. These senior management personnel share responsibility for risk identification, with each individual being responsible for day-today control of risk in their own business area.
The main features of Ashmore's risk management and internal control systems are described on page 31 in the latest Annual Report on the Ashmore website (https://ir.ashmoregroup.com), which covers Ashmore's key policies, governance bodies, business processes, and verification and confirmation activities.
The risk management framework is further embedded across the Firm through a three lines of defence model.
The Firm has three lines of defence against unintended outcomes arising from the risks it face.
Ashmore's approach to risk management provides an ongoing framework for identifying, evaluating, and managing the emerging risks and principal risks for Ashmore and AIML. The internal control framework is reviewed annually by Ashmore's Audit and Risk Committee.
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2.2. AIML risk appetite statement ("RAS")
Ashmore's risk appetite defines the levels and types of risk that the Firm is prepared to accept in pursuit of its strategic objectives and business strategy, taking into account the interests of its clients, shareholders and other stakeholders, as well as capital and other regulatory requirements.
AIML's RAS ensures the Firm has in place sound, effective and comprehensive strategies, processes and systems that enable it to identify and manage the major sources of risk relevant to the Firm given the nature and scale of its business.
A key part of AIML's risk management framework is the ICARA process which is not only integral to how the Firm manages risk but is also central to how the FCA monitors the risk of the Firm. Under the ICARA process, the Firm undertakes a comprehensive assessment of material harms and documents its findings in relation to the harms to clients, markets and the Firm itself, and the controls in place to mitigate the risks. As part of the Board's annual review and approval of the documented ICARA process, the most material harms are considered in terms of their impact to the business strategy and on the Firm's own funds, concentration risk and liquid assets.
As a result, the RAS enhances the ICARA process by making certain risks more explicit and increasing the transparency of any Board approved risk thresholds. This allows the ICARA process to assess regulatory capital and liquidity requirements in relation to risks to which AIML is exposed. AIML employs a proportionate approach to identify, quantify, monitor and manage risks present in its activities. The ultimate responsibility for risk management rests with the Board, however for practical reasons, some of this activity is delegated to senior management which promotes a risk aware culture throughout the Firm.
AIML's risk appetite framework and related metrics have been developed by engaging key stakeholders at the business and executive levels of the organisation and accordingly, AIML's risk appetite statement is reviewed and updated in line with the evolving strategy, business model, financial capacity, business opportunities, regulatory constraints and other internal and external factors. AIML's risk appetite metrics are also monitored against thresholds agreed with the Board and in doing so, are used to deal with exceptional events and detect anomalous patterns to help anticipate potential issues before they arise.
2.3. Principal risks and their management
The table below summarises the risks that have been identified as having the potential to materially harm clients, the Firm or markets. It includes examples of the mitigating actions that are in place to reduce the potential for harm.
Governance | |||
Risk type | Definition | Policy and examples of mitigation | Committee |
Business | The risk that the short, |
and strategic | medium and long term |
risk | profitability and/or reputation of |
AIML could be adversely | |
impacted by the failure to | |
either identify and implement | |
the correct strategy, or to react | |
appropriately to changes in the | |
business environment. |
- Strategy is approved by a Board with relevant industry experience.
- Experienced Emerging Markets investment professionals participate in Investment Committees.
- Strong balance sheet
- Diversification of investment themes and capabilities, and periodic capacity reviews.
- Ashmore Board reviews diversity data on an annual basis.
-
Oversight by ESG Committee, which has overall responsibility for
Ashmore's sustainability and responsible investing framework across its corporate and investment activities.
- Board
- Executive Committee
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Governance | |||
Risk type | Definition | Policy and examples of mitigation | Committee |
Operational | The risk of actual or potential |
risk | losses, incurred from |
inadequate or failed internal | |
processes, people and | |
systems, or from external | |
events (including legal and | |
regulatory risk). They include | |
the risk that operational flaws | |
result from a lack of resources | |
or planning, error or fraud, | |
weaknesses in systems and | |
controls, or incorrect | |
accounting or tax treatment. |
- Information security and data protection policies, with annual review including cyber security
- Compliance policies covering global and local offices
- Independent Internal Audit function
- Anti-moneylaundering and anti- bribery and corruption policies, also required for service providers
- Ashmore whistleblowing policy
- Regular reviews of Ashmore resource requirements
- Appropriate Remuneration policy
- Ashmore Culture and Conduct report
- Regulatory Development Steering Group and compliance monitoring programme
- Ashmore risk management policies
- Ashmore risk and compliance committees
- RCC
- ARC
Client risk | The risk arising from a lack of |
research on client suitability | |
(i.e. product type and legal | |
jurisdiction) and/or ineffective | |
management of existing and | |
potential investor base leading | |
to inefficient marketing and | |
distribution capabilities and/or | |
loss of investor confidence as | |
well as inadequate client | |
oversight including a breach of | |
client confidentiality, lack of | |
support and Treating | |
Customers Fairly (TCF) | |
leading to financial and | |
regulatory sanctions and/or | |
damage to Ashmore's | |
reputation. |
• Regular Product Committee | • | Product |
meetings review product suitability | Committee | |
and appropriateness. | • | RCC |
• Experienced distribution team with | • | ESGC |
appropriate geographic coverage. | ||
- Investor education to ensure understanding of Ashmore investment themes and products.
- Monitoring of client-related issues including a formal complaint handling process.
- Compliance and legal oversight to ensure clear and fair terms of business and disclosures, and appropriate client communications and financial promotions.
- Client at Risk and investor Liquidity reports are in the RCC pack.
Treasury risk The risk that management does not appropriately mitigate balance sheet risks or exposures which could impact the financial performance or position of the Firm.
- Defined risk appetite, and risk appetite measures updated quarterly
- Ashmore FX hedging policy and FX and Liquidity Management Committee (FXLMC)
- FXLMC
- RCC
Investment | The risk of non-performance or |
risk | manager neglect of duty, |
including the risk that long | |
term investment | |
outperformance is not | |
delivered, thereby damaging | |
prospects for winning and | |
retaining clients, and putting | |
average management fee | |
margins under increased | |
pressure; and decreased | |
market liquidity provided by | |
counterparties that AIML and | |
its funds rely on. |
- Consistent investment philosophy over 30 years with dedicated Emerging Markets focus including country visits and network of local offices.
- Employees are hired with appropriate experience and are inducted, trained and overseen appropriately.
- Funds in the same investment theme are managed by consistent investment management teams, and allocations approved by Investment Committees.
- Comprehensive policies in place to cover conflicts, best execution and market abuse.
- Investment Committees
- RCC
- ARC
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2.4. Own funds, Concentration risk and Liquidity requirements
2.4.1. Own funds
Under IFPR, the Firm is required to assess the harms posed by its business operations as described in section 2.3, and to quantify the additional capital requirement to cover the material harms based on quantitative K-factors applicable to the Firm as outlined under MIFIDPRU 4.6.
The Own Funds Requirements are driven by the highest of assessments of the K-Factor Requirement (KFR), the Fixed Overheads Requirement (FOR), and the permanent minimum capital requirement. The KFR is calculated based on the sum of each of the nine possible K-factors that apply to the Firm.
Refer to section 5 for further details on the calculation of AIML's own funds requirements.
2.4.2. Concentration risk
AIML's counterparty/credit risk is predominantly in relation to corporate cash balances held, as well as management fee debtors from the funds AIML manages. AIML holds cash in excess of the Financial Services Compensation Scheme limit of £85,000 and trade receivables with multiple institutional clients, therefore the Firm is exposed to counterparty risk. The credit risk is deemed to be a possible material harm and included in the operational risk analysis.
Concentration risk in AIML's corporate cash balances is managed by splitting cash deposits between a number of different financial institutions, with counterparty limits in place for each.
AIML regularly monitors the credit rating of the banks with which it has a relationship and takes action to change banks, if required, to minimise the credit risk. It is the policy of the Firm to deal only with counterparties approved by the Risk Management & Control department, and in accordance with the minimum credit rating requirements under the Firm's approved Trading Counterparty policy. Under this policy, cash deposits are placed with A-rated counterparties at a minimum, and maximum single counterparty exposure limit of 30%. Changes in the thresholds for exposure to any single bank issuer or group of connected bank issuers are approved by the Group CEO, Group Finance Director and the Head of Risk Management and Control.
Credit risk is managed within this context and to within acceptable parameters.
2.4.3. Liquidity risk
AIML's exposure is primarily driven by day-to-day operational cash flows linked to actual revenues received from funds managed, predominantly in USD currency. Increased liquidity risk could be driven by a decrease in revenues, increase in expenses or a reduction in cash balances due to unfavourable foreign exchange rates. AIML has exposure to non-sterling denominated revenues and expenses and is also subject to foreign exchange movements in the value of its monetary net assets whose functional currency is other than Sterling.
Ashmore's Corporate FX management framework provides guidance as to Ashmore's appetite for FX risk and expected operating practices and procedures in managing and monitoring this risk. Ashmore recognises that it is impossible to completely eliminate this FX risk and seeks to manage it to within acceptable parameters. Ashmore's tolerance to FX risk is covered as part of the FX hedging policy approved by the Ashmore Board.
Liquidity risk also arises where investments in illiquid instruments prevent efficient investment exit strategies being adopted, especially in a downturn situation, and on the firm's cash and cash equivalents and other assets. AIML does not have any seed capital or debt on its balance sheet, and cash deposits are placed in highly liquid money market instruments.
The Firm's regulatory liquid assets requirements and its monitoring process are discussed in section 5.
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3. Governance arrangements
3.1. Governance framework
The Firm's corporate governance structure operates within the Ashmore corporate governance framework, covering its business model, strategy, risk management and related processes and internal controls. AIML's governance framework comprises the Board and Ashmore governance bodies with responsibility for AIML.
The Firm has its own investment committees and is supported by the Ashmore governance and operational framework. General support services, such as legal, human resources and finance, are provided by Ashmore to AIML under a service agreement.
3.1.1. Senior Managers and Certification Regime
The Firm implemented the FCA's Senior Managers and Certification Regime ("SMCR"). This has included identifying the Senior Manager Functions ("SMFs") and describing the assigned oversight and accountabilities of each role. The SMF roles are approved by the FCA. In addition, SMCR introduced Certification Functions for roles that are not SMFs but which can have a significant impact on customers and/or the Firm ("Certified Persons").
All employees undergo thorough selection and pre-employment screening prior to commencing their roles. All employees are required to complete regular declarations, attesting to their ongoing compliance with regulatory and company requirements. All employees are subject to an annual appraisal process.
3.1.2. Board of Directors
The Board is the governing body of the Firm and ultimately responsible for providing oversight and management of the Firm in accordance with current strategic plans and objectives.
The Board consists of three Executive Directors who hold SMF 3 roles (Group CEO, Group Finance Director and Group General Counsel). The Ashmore Board has delegated its day to day responsibility for the management of Ashmore and its subsidiaries including AIML to the Group CEO, who is responsible for managing the business as well as the following:
- Leading the business towards achievement of the strategy
- Chairing the investment committees
- Making business decisions (within the framework of the Group Board's delegated authorities)
- Developing an effective relationship with the Ashmore Chair and other Board members
- Maintaining an effective dialogue with Ashmore shareholders and stakeholders
The Group CEO is supported by the senior management team who conduct their roles in line with their SMF or Certified Persons assigned responsibilities, as applicable.
In addition, the Ashmore Chair of the Audit and Risk Committee and Chair of the Remuneration Committee are SMFs for AIML (with SMF10 and SMF11; and SMF12 roles, respectively).
The Board has adopted policies and procedures that prevent and manage any potential and actual conflicts between the Firm and the interests of its clients, should they arise in the course of their individual appointments and responsibilities as members of the management body.
3.1.3. FCA Senior Management Arrangements, Systems and Controls Semi-Annual Assessment
AIML carries out an annual annual assessment in connection with Senior Management Arrangements, Systems and Controls (SYSC 4.3.1R) to ensure the Board and senior managers are giving adequate consideration to the Firm's business objectives, systems and controls, and in doing so, confirms the Firm meets the requirements of the SYSC Rules, and applies sound business practice in line with the Risk and Control Guidance.
The assessment, which is reviewed by the Board, seeks to confirm that AIML is adequately resourced and organised given the nature and size of its business, that the key functions within the Firm can co-
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