Laing

PILLAR 3 DISCLOSURES


AS AT 31 DECEMBER 2011

Introduction and background

The 2006 Capital Requirements Directive (“the Directive”) of the European Union created a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain. The Directive was implemented in the United Kingdom by the Financial Services Authority (FSA) through the creation of the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebooks for Banks, Building Societies and Investment Firms (“BIPRU”).

The new FSA framework consists of three ‘Pillars’:

• Pillar 1 sets out the minimum capital requirements for credit, market and operational risk;

• Pillar 2 requires the firm to assess whether its Pillar 1 capital is adequate to meet its risks. This involves the preparation of an internal Capital Adequacy Assessment Process “ICAAP” on at least an annual basis; and

• Pillar 3 requires the firm to publish specified information relating to its policies for managing risk and its capital requirements. This is designed to promote market discipline by providing market participants with key information on a firm’s risk exposures and risk management processes.

Basis of disclosure

John Laing Capital Management Limited is a wholly owned subsidiary of John Laing plc and its results are included in the consolidated accounts prepared by the parent company. John Laing Capital Management Limited is not part of a consolidation group for prudential purposes therefore these disclosures are made on an individual basis.

John Laing Capital Management Limited (registered number 5132286), is authorised by the FSA (regulated number 401868) to undertake certain types of designated investment business and is classified as a BIPRU €50k limited licence firm. John Laing Capital Management Limited has no trading book exposure.
Subject to the rules in BIPRU 11, firms are permitted to omit required Pillar 3 disclosures if they believe that:

• the information provided by such disclosure is not regarded as material such that its omission or misstatement would be unlikely to change or influence the assessment or decision of a user relying on that information for the purpose of making financial decisions, or

• the information is regarded as proprietary or confidential. Proprietary information is defined as information that if shared with the public would undermine the competitive position of the firm. Confidential information is defined as such where there are obligations to customers or counterparty relationships binding the firm to confidentiality.

John Laing Capital Management Limited has made no omissions on the grounds that it is immaterial, proprietary or confidential.

John Laing Capital Management Limited makes Pillar 3 disclosures, as required by the rules in BIPRU 11, on an annual basis. This document is designed to meet John Laing Capital Management Limited’s Pillar 3 disclosure obligations.

The disclosures are made as at the accounting reference date and included in John Laing Capital Management Limited’s annual report and accounts.

Risk management objectives and policies

John Laing Capital Management Limited is governed by its directors who determine its business strategy and appetite for risk. As a limited licence firm John Laing Capital Management Limited’s activities, when compared to larger more complex asset management firms, are relatively straight forward.  As a result it is managed with a proportionately simple operational infrastructure.  The directors consider Join Laing Capital Management Limited to be exposed to the following risks:

• Credit risk from investment advisory/ management fees receivable for  services provided;
• Credit risk from UK authorised banks in relation to deposits held with them; and
• Business risk associated with providing investment advice to a listed fund.

The directors implement systems and controls designed to reduce the exposure of John Laing Capital Management to the risks identified. The directors consider the likelihood and impact of the risks identified in order to determine the amount of capital required under each category as part of the ‘ICAAP’ which is carried out on at least an annual basis.

This assessment involves reviewing the risks identified in respect of its two clients who are all closely associated with the John Laing Group and includes the John Laing Infrastructure Fund (JLIF), which is a Guernsey based London Stock Exchange listed fund.

John Laing Capital Management Limited’s cash deposits are made with a bank with a high credit rating.

Based on the ICAAP carried out on December 2010 the directors do not believe it is necessary to hold any capital in addition to that required under the Capital Resources Requirement calculated under Pillar 1.

John Laing Capital Management Limited does not have any retail, equity or trading book exposures and the firm is not exposed to securitisation risk. The firm is not materially adversely impacted by interest rate fluctuations as there are no borrowings, and there is no foreign exchange risk. John Laing Capital Management Limited has Professional Indemnity Insurance in place to cover its activities.

The firm does not have any market risk exposures and hence no VaR model is used to calculate required market risk capital.

Capital resources

Compliance with capital adequacy requirements is monitored by directors on an ongoing basis. Adequate resources have been held to meet these requirements throughout the year.

At 31 December 2011 John Laing Capital Management Limited’s capital resource requirement was the greater of;

• The base capital resource requirement of £41,841 (€50,000 at 31 December exchange  rate); or
• The sum of its market and credit risk requirements (£112,757); or
• The fixed overheads requirement (£753,059)

The fixed overheads requirement has been based on 2011 expenditure.

The directors have concluded that as the company’s credit and market risk exposures are negligible, the fixed overhead requirement is the greatest of the three, and that the firm’s minimum capital requirement is its fixed overhead requirement which is currently £753,059. 

 * Tier 1 capital is comprised of fully paid, called up ordinary share capital (£550,000) and retained earnings (£959,467) and no deductions have been made.  Retained earnings include profit for 2011 that was not verified at 31 December 2011 but has subsequently been verified. 
** The Firm does not have any additional Tier 2 or Tier 3 capital resources or deductions
*** One quarter of the firm’s relevant fixed expenditure (GENPRU 2.1.53)

John Laing Capital Management Limited follows the standard approach to market and credit risk. As a limited licence firm, John Laing Capital Management Limited is not required to calculate an operational risk capital requirement under BIPRU 6.