Shaftesbury Fund Management (Luxembourg) S.A. Société Anonyme
23, boulevard Grande-Duchesse Charlotte, L-1331 Luxembourg Grand Duchy of Luxembourg R.C.S. Luxembourg B 191.107 Luxembourg-based Alternative Investment Fund Manager (the “Company”)
Remuneration policy 1. INTRODUCTION This remuneration policy (the “Policy”) has been issued and approved by the board of directors (each a “Director” and collectively the “Board”) of the Company. It purports to fulfill the requirements of (i) Article 12 and Annex II of the Law of 12 July 2013 on alternative investment funds managers (the “AIFM Law”), (ii) Commission Delegated Regulation No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council (the “AIFMD”) with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the “Regulation”) and (iii) the ESMA guidelines on sound remuneration policies under the AIFM Directive (the “ESMA Guidelines”). The following remuneration policy covers the remuneration of persons who are members of the administrative and management bodies of Shaftesbury Fund Management (Luxembourg) S.A. (also referred to as the “Company”) as well as those categories of staff whose professional activities have a material impact on the risk profile of the Company. The Company is a public limited liability company (société anonyme) authorised under article 125-2 of the law of 17 December 2010 and acts as alternative investment fund manager (“AIFM”) within the meaning of the Luxembourg Law of 12 July 2013 on alternative investment fund managers. The object of the Company is the performance for a Luxembourg alternative investment funds («AIFs») within the meaning of EU Directive 2011/61/EU of risk and portfolio management functions, administration functions, marketing functions and other activities related to the assets of AIFs, in accordance with Article 5(2), and Annex I of the Luxembourg Law of 12 July 2013 relating to alternative investment fund managers (the «2013 Law»). For the avoidance of doubt, the Company will not provide the services of (a) management of portfolios of investments on a discretionary client-by-client basis (b) investment advice, (c) safekeeping and administration in relation to shares or units of collective investment undertakings or (d) the reception and transmission of orders in relation to financial investments as contemplated in Article 5(4) of the 2013 Law.
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The Company is the appointed AIFM of only one fund “Shaftesbury Real Estate Partners 1” (the “Fund”), a Luxembourg closed-ended fund formed as a special limited partnership qualifying as an alternative investment fund (“AIF”) within the meaning of the AIFMD which purpose is the investment in European real estate and real estate-related assets which investment objective, investment strategy and limitations are disclosed in the Private Placement Memorandum. Within this fund, there is only one investor who committed to a maximum of EUR 145 mios. The Company is managed on a daily basis by Mr Christophe Fasbender, Mr Nicolas Hanus, Mr Sébastien Le Bras acting as Conducting Officers. (Except for Mr Le Bras who is linked to the Company by a mandate, all other Conducting Officers are employed full time with an indefinite employment contract by the Company). Mr Le Bras, an employee of Shaftesbury Asset Management (Switzerland) S.A. shares his real estate expertise over the portfolio management on a part time basis. The Conducting Officers assume their responsibilities under the supervision of the Board of Directors and the Overview Committee (reference is made to “identified staff” under section 5). The Company has identified the following risks to be pertinent from an AML/CFT perspective: ––customer risk; and ––country or geographical risk The Company has putted in place internal procedures and policies to mitigate these identified risks (AML procedure, Risk and Liquidity management process, valuation policy...). As far as the size of the Company, its organization and the nature, scope and complexity of its activities are concerned, the Company is applying the proportionality principle regarding remuneration matters. As proportionality principle is applied, the following requirements under ESMA/2013/232 are disapplied: ––variable remuneration in instruments; ––retention; ––deferral; ––ex post incorporation of risk for variable remuneration; ––establishment of a remuneration committee.
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2. APPLICATION FRAMEWORK This procedure applies to any employee and/or staff and board members on a fixed or indefinite period and whose professional activities may have a material impact on the risk profile of the Fund under management and at the Company level. The Company adopts the definition of identified staff in accordance with ESMA Guidelines on sound remuneration policies under the Company being: categories of staff, including senior management, risk takers, control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the Company’s risk profile or the risk profile of the Fund that it manages. The provisions in this section shall apply to all employees of the Company that qualify as identified staff according to the definition as set out above.
3. RESPONSIBILITIES 3.1 The Board of Directors The Board of Directors is responsible for defining the general principles governing the remuneration policy. It must ensure its implementation. The Company’s Board has the overall responsibility to implement the remuneration policy, which appropriately aligns the risks faced by the Fund under management and the Company, and to provide adequate and effective incentives to the staff of the Company. The Company’s remuneration policy shall be based on the following general principles: ––Transparency: The remuneration policy shall be defined in the present document and shared with key stakeholders including shareholders, clients, employees and regulators. ––Fairness: The individual benefits will be based on the effective contribution to the results of the Company as determined by the Board of Directors, supported where possible by standard individual Key Performance Indicators (KPI). ––Long-term Alignment of Interests: The aim of the policy is to create a win-win environment where the long-term financial interest of clients, employees and shareholders are aligned. ––Financial Stability: The incentive remuneration shall under no circumstances expose the Company to undue increased financial or operational risks.
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The Board is responsible for the following tasks (subject to a veto right of the overview committee of the Company (the “Overview Committee”)): ––implementing and maintaining the remuneration policy according to the Company’s strategy; ––assessing the employees’ performance (the assessment must clearly evidence any additional amount granted as remuneration to employees); ––defining the HR strategies in accordance with the risk assessment of the Company’s activities; ––approving the employment/mandate agreements; ––controlling the way, the policy is applied; and, ––keeping a log of its own activity (risk analysis, employee assessments) to evidence the decision taken by the Board. The remuneration policy is consistent with, promotes sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profiles, management regulations via: ––Establishing a sound governance structure for setting goals and communicating these goals to employees; ––Including non-financial goals in performance and result assessments (standard individual Key Performance Indicators “KPI”; reference is made to the Annual Evaluation); ––Including the financial situation of the Company. The remuneration policy ensures that: ––The Company is able to attract, develop and retain high-performing and motivated employees in a competitive, international market; ––Employees are offered a competitive remuneration package; ––Employees feel encouraged to create sustainable results and that a link exists among shareholder, employee and clients’ interests; ––The remuneration of senior management in the area of portfolio management is based on the long term performance of the respective Fund under management and does not encourage risk-taking which is inconsistent with the risk profile of this Fund; ––The remuneration of risk and compliance management does not compromise the independence of these functions and is not solely determined by Company-wide performance criteria. The remuneration of risk and compliance management is defined in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.
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The Board will monitor compliance with the remuneration policy on an annual basis and decide on any necessary changes, considering advice by the Overview Committee. This will include alignment with the business strategy, objectives, values and interests of the Company and of the Fund it manages as well as measures to avoid conflicts of interest. Furthermore, the Board shall define clear and measurable objectives that will be the basis of the annual assessment. The Overview Committee will brief all members of the Board on remuneration issues / proposed policy amendments and prepare the necessary documentation for the Board’s dealings with remuneration issues. Employees of the Company shall have one annual performance and appraisal interview. The individual employees shall evaluate performance and set goals. In assessing the performance, the Board will ensure that potential conflicts of interest of the Company and of the Fund it manages, or the investors of the Fund are properly considered, integrated and documented and measures to avoid conflicts of interest are established. The policy will be reviewed annually by the Board with the close involvement of the Overview Committee as well as the control functions, i.e. risk management, compliance and internal audit. The annual review will ensure that: ––The remuneration system operates as intended; and ––Is compliant with national and international regulations, principles and standards. The Board shall ensure that the results of the review are followed up. Any amendments to the remuneration policy will be subject to Board approval. The Board may deviate from this policy in individual cases, if justified by extraordinary and documented circumstances. The remuneration policy is subject to the approval by the Board of the Company. 3.2 Role of the control functions as regards the investment policy The risk management function should assess how the variable remuneration structure affects the risk profile of the Company. The compliance function should analyse how the remuneration structure affects the Company’s compliance with legislation, regulations and internal policies. The internal audit function should periodically carry out an independent audit of the design, implementation and effects of the Company’s remuneration policies. Under the proportionality principles and with the absence of a remuneration committee, the remuneration attributable to those engaged in risk and compliance functions is directly overseen by the Board of Directors. Moreover, the Overview Committee will brief all members of the Board on remuneration issues.
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4. REMUNERATION COMPONENTS The present remuneration policy, as well as its underlying remuneration principles have been established in a way, as to ensure a balance between fixed and variable remuneration, where the fixed remuneration represents a sufficiently high proportion of the total remuneration, allowing for a fully flexible remuneration policy on the variable components, including the possibility of not granting any variable pay. The underlying remuneration principles have been established in a way as not to limit Shaftesbury’ ability to maintain and/or reinforce its sound capital base. Remuneration shall be understood for the purpose of this policy as: ––All forms of payments or benefits paid by the Company; ––Any payments paid by the AIF itself, including carried interest; Carried interest is covered by this policy. The various remuneration components are combined to ensure an appropriate and balanced remuneration package that reflects the Company’ business, the employee’s rank within the Company and professional activity as well as market practice. The remuneration components are: ––Fixed remuneration; ––Annual incentive (“bonus”); ––Other benefits; ––Any amount paid by the Company/AIF itself, including carried interest (if applicable); Fixed Remuneration The fixed remuneration is determined on the basis of the role of the individual employee, including his / her responsibility and job complexity, performance and local market conditions. The fixed components shall represent a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy (including the possibility to pay no performance-based component). This also implies that fixed remuneration should be sufficiently high to remunerate the professional services rendered, in line with the level of education, the degree of seniority, the level of expertise and skills required, the constraints and job experience, the relevant business sector and region.
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Apart from the fixed remuneration, the remuneration of the Company’s employees will or may include the following: ––Some additional arrangements that can be included in the employment agreements. These arrangements such as expense and relocation allowances, medical insurance, accident insurance, contributions to employees’ personal pension plans or car arrangements are only allowed by the Board (subject to the veto right of the Overview Committee). Additional provisions to the remuneration policy will be implemented to ensure compliance in case an employee would benefit from a pension plan in the future1. ––Severance payments are payable in accordance with relevant employment laws and the collective agreement and, furthermore, reflect the performance achieved over time and are designed in a way that does not reward failure. Annual incentive (“bonus”) There is no guaranteed variable remuneration. However, guaranteed bonus may occur as “welcome bonus”; a special clause to guarantee a welcome bonus can be included in the employment contract. This clause guarantees a bonus for the first year only. This welcome bonus as well as the amount is decided by the Board (subject to the veto right of the Overview Committee) according to the Company’s HR strategy. The part of the bonus to be paid at the end of the year is based on a “prorata temporis” calculation. Then, this bonus can be split in two parts if the employment begins after the first day of January. The annual incentive is only based on the Company internal goals / KPIs, and the economic results achieved during each fiscal year. By no means will be based or related to the Fund’ performance. It motivates and rewards performers, who strengthen long-term relationships and generate income and shareholder value. Performance-based remuneration is awarded in a manner which promotes best practices, ensures risk management policies are implemented and does not induce excessive risk-taking. Performance-based remuneration may be disbursed as cash bonus. Performance-based pay is awarded by ensuring: ––That the fixed component represents a sufficiently high proportion of the total remuneration to make non-payment of the performance-based component possible; ––That a significant part of the employee’s goals was met during the year and over a 3 years’ period of time; There is no commitment to award performance-based pay to employees of the Company. The Board of the Company can, however, decide to award such pay depending on the Company reaching a certain turnover / profit threshold, which is determined by the Board of the Company.
1 The pension policy will be in line with the business strategy, objectives, values and long-term interests of the AIFM and the AIFs it manages. If the employee leaves the AIFM before retirement, discretionary pension benefits shall be held by the AIFM for a period of five years in the form of instruments (to be defined according to the pension policy). In the case of an employee reaching retirement, discretionary
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Carried interest The fund under management may pay a carried interest to a carried interest vehicle, the shareholders of which will be: ––the indirect shareholders of the Company; and ––a pool composed of employees of the Shaftesbury Asset Management Group (the “SAM Group”) assisting the Company. The carried interest will only be payable at the term of the funds (or once the liquidation phase of the fund’s portfolio will be well advanced) and will thus be linked to the final performance of the fund. If one of the persons entitled to the carried interest leaves the SAM Group before the fund pay the carried interest to the carried interest vehicle, the leaving person will not be entitled to claim any variable remuneration and will lose its portion of the carried interest. Method used to determine the carried interest is detailed in the signed Limited Partnership agreement of Shaftesbury Real Estate Partnership 1. General prohibitions Some arrangements are clearly excluded from those authorized by this policy: ––minimum bonus; ––multi-year guaranteed bonus; ––golden parachute; ––payment in instruments (stock option, equity instruments…).
5. IDENTIFIED STAFF This policy applies to identified staff as mentioned in section 2 above to the extend they receive a remuneration from the Company: ––Fixed salary; ––Annual incentive; ––Carried interest.
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Members of Investment Committee and members of the Board with the exception of Mr Iain Macleod acting as independent director are not remunerated by the Company. Mr Macleod is not subject to the provisions set out under this remuneration policy however, remains well as identified staff. For the time being, Mr Fasbender, Mr Hanus and the independent director are the identified staff remunerated directly by the Company. Mr Sébastien Le Bras, staff member of Shaftesbury Asset Management (Switzerland) S.A., and acting as Conducting Officer is subject to the remuneration policy on the basis of article 2.3.9. of the signed mandate. The remuneration structure of control functions’ personnel will not compromise the independence of the identified staff or create conflicts of interest in their advisory role to the Board of the Company. The remuneration level of staff in the control functions of the Company allows employing qualified and experienced personnel for these functions. Any conflicts of interests potentially related to the variable remuneration will be properly addressed to the Board of Directors and to the Overview Committee. Control functions will not be placed in a position where, for example, approving a transaction, making decisions or giving advice on risk and financial control matters could be directly linked to an increase or decrease in their performance-based remuneration. The relevant Identified Staff will be required to undertake not to use personal hedging strategies or remuneration and liability related insurance to undermine the risk alignment effects embedded in their remuneration arrangements.
6. REMUNERATION IN THE CASE OF DELEGATION In instances where the Company is delegating portfolio management, the following will be ensured: ––The entities to which portfolio management activities have been delegated are subject to regulatory requirements on remuneration that are equally effective as those applicable under this remuneration policy; or ––Appropriate contractual arrangements are put in place in order to ensure that there is no circumvention of the remuneration rules set out within the Company’s remuneration policy.
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