Summary of Source Investment Management Limited Remuneration Policy
Source Investment Management Limited (the "Company") has a remuneration policy in place in compliance with Regulation 89 of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. The remuneration policy does not extend to any delegates of the Company and is restricted in scope to the Company itself. The remuneration policy imposes remuneration rules regarding staff whose activities have a material impact on the risk profile of the funds managed by the Company.
Remuneration and benefits are calculated in recognition of the important role played by sound risk management in protecting investors in funds managed by the Company. The remuneration policy takes into account the nature, scale and complexity of the Company s business. In determining the governance of its remuneration procedures, the Company has given due consideration to the number of funds managed, the nature of and restrictions placed on such funds from a regulatory perspective, the type of investments, the investment strategies, the investment location, the distribution model and the investor base. Due consideration has also been given to the resources available to the Company and the resources and expertise of the various third parties engaged to support the Company and carry out certain functions on its behalf.
Only fixed remuneration (meaning payments or benefits without consideration of any performance criteria) is paid by the Company to the independent Directors and designated persons of the Company who fulfil managerial functions. Directors who are executives of the Source UK Services Limited are not paid such remuneration. The Board of Directors of the Company, as identified in the section of the Prospectus headed "Directors of the Company", are responsible for awarding remuneration and any benefits.
A paper copy of the remuneration policy may be obtained free of charge on request from the Company.
PIMCO GLOBAL ADVISORS (IRELAND) LIMITED (THE “MANAGER”) UCITS REMUNERATION POLICY
In accordance with its obligations under Directive 2009/65/EC, as amended (the “UCITS Directive”) the Manager is required to have remuneration policies and practices for those catagories of staff, including senior management, risk takers, control functions, and any employees 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 risk profiles of the Manager or any Undertakings for Collective Investment in Transferable Securities (“UCITS”) under management, that are consistent with and promote sound and effective risk management (and the principles as outlined in the Schedule hereto) and do not encourage risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the Manager or the UCITS.
Application of the Policy
The Manager has no employees. The Manager has a Board of Directors. The Non-Executive members of the Board of Directors receive a fixed fee only and do not receive performance-based remuneration. This remuneration policy has been approved by the Board of Directors of the Manager and the Board of Directors will be held ultimately responsible for its implementation. Any amendments to this policy will be subject to the prior approval of the Board of Directors.
Remuneration Policy Framework
The policy reflects the Manager’s objective for good corporate governance and:
- is consistent with and promotes sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profile, rules or instruments of incorporation of the Manager or any UCITS; and
- is consistent with the Manager’s or any UCITS business strategy, objectives, values and interests and includes measures to avoid conflicts of interest.
The policy is consistent with and promotes sound and effective risk management by –
- having a business model which by its nature does not promote excessive risk taking; and
- ensuring that the fixed salary element of those involved in relevant functions reflects the market rate.
This remuneration policy (together with compliance herewith) will be subject to both internal and independent annual review. These reviews will ensure that –
- the overall remuneration system operates as intended;
- any remuneration pay-outs are appropriate;
- the risk profile, long term objectives and goals of the Manager are adequately reflected; and
- the policy reflects best practice guidelines and regulatory requirements.
The principles set out in this policy apply to remuneration of any type paid by a UCITS or any amount paid directly by a UCITS (including performance fees) and to any transfer of units or shares of a UCITS (in certain circumstances and to certain persons prescribed in Article 14b of the UCITS Directive).
The relevant persons to whom this policy applies, at the level of the Manager, are the Non-Executive members of the Board of Directors. The Non-Executive members of the Board of Directors receive a fixed fee only and do not receive performance-based remuneration therefore avoiding a potential conflict of interest. The basic fee of a Non-Executive Board member is set at a level that is on par with the rest of the market and reflects the qualifications and contribution required in view of the complexity of the Manager and the UCITS, the extent of the responsibilities and the number of board meetings. No pension contributions are payable on Non-Executive Board members’ fees.
Taking the nature, scale and complexity of the Manager and the UCITS into consideration, the Board of Directors believes that the approach to performance-based pay as outlined above is appropriate and reflects the risk profile, appetite and strategy of the Manager and the UCITS.
Risk Management Function
The remuneration of those engaged in the performance of the risk management function reflects the achievement of the objectives linked to the risk management function, independently of the performance of the business areas in which they are engaged.
The method of determining the remuneration of a compliance officer and other persons in the compliance function do not affect their objectivity and are not likely to do so as their remuneration is not linked in any way to the performance of the UCITS.
Portfolio/Risk Management Delegates
It is noted that Recital 2 of Directive 2014/91/EU (the “UCITS V Directive”) outlines that the remuneration policies and practices should apply, in a proportionate manner, to any third party which takes investment decisions that affect the risk profile of a UCITS because of functions which have been delegated in accordance with Article 13 of the UCITS Directive. This recital is not further clarified in the UCITS V Directive. ESMA is due to publish “Guidelines on sound remuneration policies under the UCITS Directive and AIFMD” (the “ESMA Guidelines”). As at the date of this remuneration policy, /6642547v6 the ESMA Guidelines are still in draft form. Once finalised and published, this remuneration policy will be reviewed and updated as necessary in accordance with the ESMA Guidelines.
SCHEDULE REMUNERATION PRINCIPLES AS OUTLINED IN ARTICLE 14B OF THE UCITS DIRECTIVE
In accordance with Article 14(b)(1) of the UCITS Directive, the Manager must comply with the following principles in a way and to the extent that is appropriate to the Manager’s size, internal organisation and the nature, scope and complexity of its activities:
(a) the remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the UCITS that the management company manages;
(b) the remuneration policy is in line with the business strategy, objectives, values and interests of the management company and the UCITS that it manages and of the investors in such UCITS, and includes measures to avoid conflicts of interest;
(c) the remuneration policy is adopted by the management body of the management company in its supervisory function, and that body adopts, and reviews at least annually, the general principles of the remuneration policy and is responsible for, and oversees, their implementation; the tasks referred to in this point shall be undertaken only by members of the management body who do not perform any executive functions in the management company concerned and who have expertise in risk management and remuneration;
(d) the implementation of the remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the management body in its supervisory function;
(e) staff engaged in control functions are compensated in accordance with the achievement of the objectives linked to their functions, independently of the performance of the business areas that they control;
(f) the remuneration of the senior officers in the risk management and compliance functions is overseen directly by the remuneration committee, where such a committee exists;
(g) where remuneration is performance-related, the total amount of remuneration is based on a combination of the assessment as to the performance of the individual and of the business unit or UCITS concerned and as to their risks and of the overall results of the management company when assessing individual performance, taking into account financial and nonfinancial criteria;
(h) the assessment of performance is set in a multi-year framework appropriate to the holding period recommended to the investors of the UCITS managed by the management company in order to ensure that the assessment process is based on the longer-term performance of the UCITS and its investment risks and that the actual payment of performance-based components of remuneration is spread over the same period;
(i) guaranteed variable remuneration is exceptional, occurs only in the context of hiring new staff and is limited to the first year of engagement;
(j) fixed and variable components of total remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component;
(k) payments relating to the early termination of a contract reflect performance achieved over time and are designed in a way that does not reward failure;
(l) the measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks;
(m) subject to the legal structure of the UCITS and its fund rules or instruments of incorporation, a substantial portion, and in any event at least 50 %, of any variable remuneration component consists of units of the UCITS concerned, equivalent ownership interests, or share-linked instruments or equivalent non-cash instruments with equally effective incentives as any of the instruments referred to in this point, unless the management of the UCITS accounts for less than 50 % of the total portfolio managed by the management company, in which case the minimum of 50 % does not apply. The instruments referred to in this point shall be subject to an appropriate retention policy designed to align incentives with the interests of the management company and the UCITS that it manages and the investors of such UCITS. Member States or their competent authorities may place restrictions on the types and designs of those instruments or ban certain instruments as appropriate. This point shall apply to both the portion of the variable remuneration component deferred in line with point (n) and the portion of the variable remuneration component not deferred;
(n) a substantial portion, and in any event at least 40 %, of the variable remuneration component, is deferred over a period which is appropriate in view of the holding period recommended to the investors of the UCITS concerned and is correctly aligned with the nature of the risks of the UCITS in question. The period referred to in this point shall be at least three years; remuneration payable under deferral arrangements vests no faster than on a pro-rata basis; in the case of a variable remuneration component of a particularly high amount, at least 60 % of the amount shall be deferred;
(o) the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the management company as a whole, and justified according to the performance of the business unit, the UCITS and the individual concerned. The total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the management company or of the UCITS concerned occurs, taking into account both current compensation and reductions in payouts of amounts previously earned, including through malus or clawback arrangements;
(p) the pension policy is in line with the business strategy, objectives, values and long-term interests of the management company and the UCITS that it manages. If the employee leaves the management company before retirement, discretionary pension benefits shall be held by the management company for a period of five years in the form of instruments referred to in point (m). In the case of an employee reaching retirement, discretionary pension benefits shall be paid to the employee in the form of instruments referred to in point (m), subject to a five-year retention period;
(q) staff are 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;
(r) variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the requirements laid down in this Directive.