UK Public Disclosure
SILVER LAKE EUROPE LLP
PUBLIC DISCLOSURE STATEMENT
YEAR ENDING 31 December 2022
Silver Lake Europe LLP (FRN 460882) (the “Firm“) is authorised and regulated by the Financial Conduct Authority (the “FCA”). The Firm is part of the Silver Lake group (the “Group“), which is an alternative asset management group specialising in private equity investments.
This document (the “Disclosure Statement“) sets out the information the Firm is required to disclose annually under chapter 8 of the MIFIDPRU Sourcebook in the FCA Handbook of Rules and Guidance. All information is as at the date on page 1 unless otherwise indicated.
The information in this Disclosure Statement relates to the Firm on an individual basis, i.e., it does not concern any other entities in the Group.
A number of functions used by the Firm are Group-level. As such, the Firm will involve Group-level functions in the activities described below, as required.
Unless otherwise noted, the information contained in this Disclosure Statement has not been audited by the Firm’s external auditors and does not constitute any form of financial statement and should not be relied upon in making any judgment on the Firm.
2. Governance Arrangements
2.1 Role of Management Committee
The Firm is governed by members of its management committee (“Management Committee“). The Firm is required to ensure that the Management Committee defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the Firm, including the segregation of duties in the Firm and the prevention of conflicts of interest, and in a manner that promotes the integrity of the market and the interests of clients.
The Firm seeks to achieve this through several means, including:
- through adopting an appropriate process for appointments to the Management Committee;
- processes for the functioning of the Management Committee, including reporting of management information on risks the Firm is or might be exposed to, or the Firm poses or might pose to others;
- obligations under the FCA Senior Managers and Certification Regime, as part of which certain senior members of staff (“Senior Management Function-holders“) are required to be approved by the FCA and a number of other members of staff are required to be certified by the Firm as fit and proper to perform their roles;
- legal obligations applicable to members of the Management Committee under the Limited Liability Partnership Regulations 2001 and fiduciary and agency law;
- policies and procedures, including in particular the Firm’s compliance manual, conflicts of interest policy, remuneration policy, and its policies on personal account dealing and market abuse;
- its policy on the suitability of the management body, which seeks to ensure that:
- individually, the members of the Management Committee are of sufficiently good repute, possess sufficient knowledge and experience to perform their duties, commit sufficient time to the role and demonstrate honesty, integrity and independence of mind; and
- the Management Committee as a whole possesses adequate collective knowledge, skills and experience to understand the Firm’s activities, including the main risks and reflect an adequately broad range of experiences; and
- the appointment of legal and accounting advisers and compliance consultants and other advisers as required from time to time.
2.2 Composition of the Management Committee
The members of the Firm’s Management Committee are set out in the following table, together with the number of directorships held by each member (i.e. excluding their role on the Management Committee, since this is not a directorship at law), including directorships of portfolio companies but excluding (i) directorships held in organisations which do not pursue predominantly commercial objectives and (ii) directorships of Group entities.
|Name||Number of directorships (executive and non-executive)|
2.3 Diversity of the Management Committee
The Firm is committed to promoting diversity and equal opportunities for staff throughout the Firm, including on its Management Committee. The Firm believes that diverse and inclusive teams make better decisions, and this informs the Firm’s recruitment and retention strategies, both across the organisation as a whole and at the level of its Management Committee.
All appointments are made on merit against objective criteria, and with regard to individual and collective knowledge, skills, experience and diversity of the Management Committee, as a whole, in accordance with the Firm’s policy on the suitability of the management body.
2.4 Risk governance
The Firm has well-established risk management policies in relation to the operational risks facing the business as well as those associated with the Firm’s activities. The Management Committee is ultimately responsible for the Firm’s overall risk management and for maintaining an appropriate internal control framework.
The Firm does not have an independent risk management function, nor is it required to maintain a Risk Committee. Instead, the Firm’s Management Committee is supported in its responsibility for managing the risks inherent in the Firm’s activities by the Legal, Compliance and Finance departments.
3. Risk Management Objectives and Policies
3.1 Potential for harm associated with the Firm’s business strategy
The Firm considers that the potential for harm associated with its business strategy is low. Notably, the Firm does not engage in proprietary trading, underwriting, placing, clearing or settlement activities, hold significant balance sheet exposures, have tied agents or provide custody services or services to retail clients.
The Firm’s business strategy reflects its generally low-risk appetite, including towards risks in conduct, prudential matters, reputation, legal, compliance and regulation, financial crime, data and cyber security, and sustainability.
The Firm is remunerated by an affiliated fund management entity on a cost-plus basis and receives sufficient revenues to cover the Firm’s total costs plus a mark-up.
The level of detail of information in this Disclosure Statement is consistent with this proportionality assessment.
3.2 Strategies and processes used to manage risks addressed by own funds and liquid assets requirements
Basic Own Funds Requirement and Basic Liquid Assets Requirement
The Firm is subject to a Basic Own Funds Requirement and a Basic Liquid Assets Requirement.
The Firm’s Basic Own Funds Requirement is the higher of (i) £75,000, (ii) one quarter of its preceding year’s fixed overheads (its fixed overheads requirement, or “FOR“) and (iii) a ‘K-factor’ requirement (“KFR“) (0.02% applied to its assets under ongoing advice).
The Firm’s Basic Liquid Assets Requirement is the sum of one third of its FOR and 1.6% of the total amount of any guarantees provided to clients.
Details of the Firm’s own funds (i.e. its corporate member capital contributions) are set out at Schedule 1.
Details of the Firm’s Basic Own Funds Requirement are set out at Schedule 2.
Overall Financial Adequacy Rule
The Firm must at all times comply with the overall financial adequacy rule (the “OFAR“). This requirement, which supplements the Firm’s Basic Own Funds Requirement and Basic Liquid Assets Requirement, requires the Firm to holds sufficient own funds and liquid assets to:
- ensure it can remain viable throughout the economic cycle, with the ability to address any potential harm the Firm’s ongoing activities might cause to its clients and counterparties, the markets in which it operates and the Firm itself; and
- allow its business to wind‑down in an orderly way, minimising harm to clients and counterparties and to other market participants.
The Internal Capital Adequacy and Risk Assessment
The Firm uses an internal capital adequacy and risk assessment (“ICARA“) process to identify whether it is complying with its OFAR and, if it is not, to identify what steps it should take to remedy this.
The focus of the ICARA process is on identifying and managing risks that may result in material harms to clients and counterparties, the markets in which the Firm operates and the Firm itself, measuring the effectiveness of the Firm’s strategies to monitor and mitigate those harms, and determining whether additional own funds and/or liquid assets are required to mitigate any residual risks.
The FCA recognises that the risk of some material harms can be reduced through proportionate measures other than holding additional financial resources, for example implementing additional internal systems and controls, strengthening governance and oversight processes or changing the manner in which the Firm conducts certain business.
However, for other harms identified, it may be that the only realistic option to manage them and to comply with the OFAR is for the Firm to hold additional own funds and/or additional liquid assets above its Basic Own Funds Requirement and Basic Liquid Assets Requirement.
The Firm has therefore formed a judgment about what is appropriate and proportionate in its particular circumstances, informed by its risk appetite, which is set by the Management Committee.
The Firm’s ICARA document is updated annually (or more frequently, as required) by the Firm’s Legal, Compliance and Finance teams, with input from external advisers as required. The document and the key assumptions underlying it are then reviewed and approved by the Management Committee.
Responsibilities of Senior Management Function-holders
The Firm has a Senior Management Function-holder whose responsibilities encompass prudential compliance. The Management Committee is responsible for deciding whether to take any and all recovery actions set out in its ICARA; it will designate particular individuals to be responsible for the implementation of specific recovery actions, as required, which are expected to include members of the Firm’s Legal and Finance teams.
All Senior Management Function-holders recognise that the ICARA process is a key requirement of the regulatory system for the Firm and that it is an essential part of the Firm’s internal systems and procedures for ensuring that the Firm’s business is run prudently.
3.3 Concentration risk
Concentration risk refers to the risks arising from the strength or extent of the Firm’s relationships with, or direct exposure to, a single client or group of connected clients. The Firm has identified the following concentration risks and has put in place the following control strategies:
This is the risk that the Firm has a significant amount of its revenue concentrated in a small number of clients, leaving it exposed if it loses one or more of those clients.
The Firm’s revenue is derived entirely from an affiliate under a cost-plus arrangement. Whilst this technically creates a concentration risk, the Firm considers that any downside of this is more than offset by the stability of revenue that the arrangement creates.
The Firm maintains instant-access cash accounts with an institutional Fitch A Stable (or above) UK credit institution in order to keep cash deposit risk to an acceptable level. The Firm, including Finance, monitors and controls its cash deposit risk on an ongoing basis.
4.1 Remuneration governance
The Management Committee has overall responsibility for the Firm’s remuneration policies and procedures, which have been adopted by the Management Committee and are reviewed annually.
The Management Committee has allocated responsibility for overseeing the implementation of the Firm’s remuneration policy to a Senior Management Function-holder. The Firm’s remuneration policies and practices are operated on a day-to-day basis by the Human Resources Department with support from the Compliance department.
4.2 Material Risk Takers
The Firm’s material risk takers (“MRTs“) are those individuals whose professional activities have a material impact on the Firm’s risk profile. The Firm’s MRTs comprise of members of the Management Committee and the Compliance and Money Laundering and Reporting Officer.
During the course of the year, the Firm identified four MRTs in total.
4.3 Remuneration structure
The Firm’s remuneration arrangements seek to ensure effective risk alignment between the Firm’s staff, the Firm itself and the Funds advised by the Group.
The Firm awards both fixed remuneration (typically, Firm members’ fixed annual profit share / Firm employees’ salary, together with salary-linked pension contributions and certain benefits (as applicable)) and variable remuneration (typically, variable annual profit share / annual performance staff bonus, and carried interest awards (which are treated as variable remuneration for the purposes of MIFIDPRU only), where applicable).
Fixed remuneration is determined primarily by the market rate for the role performed, having regard to the skills, expertise and experience demonstrated by the particular individual.
In the case of employees, variable remuneration is determined based on the Firm’s performance assessment criteria, having regard to the individual’s performance against those criteria during the relevant performance period and over a multi-year framework and for the Firm members, on the basis of the performance of the Firm as a whole. Variable remuneration typically takes the form of an annual discretionary bonus / variable annual profit shares (as applicable) and other cash bonus arrangements. Different categories of variable remuneration are available to different types of staff and eligibility for certain types of variable remuneration is also linked to positions held within the Firm, but most schemes are available to the majority of staff. For example, certain staff are eligible to participate in carried interest arrangements and Silver Lake’s leveraged co-invest schemes, and, in the case of the Firm members, receive variable annual profit share, where applicable.
The total available pool of variable remuneration is determined by reference to the Firm’s financial performance, taking into account the Firm’s regulatory capital and liquidity requirements, future working capital needs and any reasonably foreseeable liabilities or obligations. Where applicable, individual performance is assessed by reference to both financial and non-financial criteria, including whether an individual has adhered to the Firm’s internal compliance policies and procedures and demonstrated behaviours consistent with the Firm’s corporate values.
The Firm does not typically offer non-standard forms of variable remuneration. The Firm hires individuals into roles conferring MRT status only rarely. In exceptional circumstances, the Firm has the ability to offer guaranteed variable remuneration to MRTs joining the Firm in the form of a ‘lost opportunity bonus’, provided the Firm’s capital position is sufficiently sound at that time.
The Firm has obtained legal advice in relation to the requirements in SYSC 19G but does not use external consultants in the development of its remuneration policies and practices.
4.4 Risk adjustment
The Firm’s variable remuneration arrangements are fully discretionary, and the Firm is able to apply in-year adjustments to reduce (including to zero) the amount of variable remuneration that would otherwise have been paid to any member of staff (including MRTs).
Variable remuneration awarded to MRTs is subject to additional adjustments. In specific circumstances where an MRT has (i) participated in or been responsible for conduct which has resulted in significant losses to the Firm and/or (ii) failed to meet appropriate standards of fitness and propriety, the Firm may take one or more additional measures including malus (reducing the amount of variable remuneration awarded to an MRT) and/or clawback (requiring the MRT to make a payment to the Firm equal to all or some variable remuneration received within a specified time period).
The Firm ensures that any payments to MRTs relating to the early termination of an employment contract reflect the individual’s performance over time and do not reward failure or misconduct.
The Firm maintains policies and procedures governing its approach to risk adjustments and severance payments, including how the Firm takes into account current and future risks when adjusting remuneration.
5. Quantitative disclosures
The Firm has aggregated its disclosures in relation to senior management and other MRTs in order to avoid disclosing information concerning one or two individuals only.
|Total renumeration to all staff||Severance payments made to MRTs||Guaranteed variable remuneration awarded to MRTs|
|Total fixed remuneration||(GBP million)||Total payments made||(GBP million)||Total payments made||(GBP million)|
|Senior management and other MRTs||1.69||Senior management and other MRTs||N/a||Senior management and other MRTs||N/a|
|SUB-TOTAL||6.60||Amount of highest severance payment awarded||N/a|
|Total variable remuneration||(GBP million)||Awards of severance payments made||No. of MRTs||Awards of guaranteed variable remuneration made||No. of MRTs|
|Senior management and other MRTs||4.61||Senior management and other MRTs||N/a||Senior management and other MRTs||N/a|
SCHEDULE 1 OWN FUNDS
|Composition of regulatory own funds (“Template OF1”)|
|Item||Amount (GBP thousands)||Source based on reference numbers/letters of the balance sheet in the audited financial statements|
|TIER 1 CAPITAL|
|COMMON EQUITY TIER 1 CAPITAL|
|Fully paid-up capital instruments||4,000||Members’ capital classified as equity|
|Accumulated other comprehensive income||N/a||N/a|
|Adjustments to CET1 due to prudential filters||N/a||N/a|
|(-) TOTAL DEDUCTIONS FROM COMMON EQUITY TIER 1||N/a||N/a|
|CET1: Other capital elements, deductions and adjustments||N/a||N/a|
|ADDITIONAL TIER 1 CAPITAL|
|Fully paid-up, directly issued capital instruments||N/a||N/a|
|(-) TOTAL DEDUCTIONS FROM ADDITIONAL TIER 1||N/a||N/a|
|Additional Tier 1: Other capital elements, deductions and adjustments||N/a||N/a|
|TIER 2 CAPITAL|
|Fully paid up, directly issued capital instruments||N/a||N/a|
|(-) TOTAL DEDUCTIONS FROM TIER 2||N/a||N/a|
|Tier 2: Other capital elements, deductions and adjustments||N/a||N/a|
|Own funds: reconciliation of regulatory own funds to balance sheet in the audited financial statements|
|Balance sheet as in published/audited financial statements||Under regulatory scope of consolidation||Cross- reference to template OF1|
|As at period end (GBP thousands)||As at period end (GBP thousands)|
|Assets – Breakdown by asset classes according to the balance sheet in the audited financial statements|
|Debtors: amounts falling due after more than one year||3,322||N/a||N/a|
|Debtors: amounts falling due within one year||20,514||N/a||N/a|
|Cash at bank and in hand||3,769||N/a||N/a|
|Liabilities – Breakdown by liability classes according to the balance sheet in the audited financial statements|
|Creditors: amounts falling due within one year||3,229||N/a||N/a|
|Provision for other liabilities||570||N/a||N/a|
|Members’ capital classified as equity||4,000||N/a||Fully paid-up capital instruments|
|Members’ capital classified as debt||1,765||N/a||N/a|
|Other amounts due to members||21,443||N/a||N/a|
|Total Shareholders’ equity||27,208||N/a||N/a|
|Own funds: main features of own instruments issued by the firm|
|Free text included below.|
|The Firm meets its own funds threshold requirement (“OFTR“) through its fully paid-up member capital contributions, the entirety of which have been contributed by the Firm’s corporate member which is the Firm’s immediate parent undertaking.|
SCHEDULE 2 BASIC OWN FUNDS REQUIREMENTS
|Category of requirement||Amount (GBP thousands)|
|1||PERMANENT MINIMUM REQUIREMENT||75|
|2||FIXED OVERHEADS REQUIREMENT||2,431|
|3||K-FACTOR REQUIREMENT (K-AUM: ASSETS UNDER MANAGEMENT)||628|
|BASIC OWN FUNDS REQUIREMENT (HIGHEST OF ROWS 1-3)||1,027|