Pello Capital (“CCL” or “the Firm”) is a trading name of Pello Capital Limited, company number 5267797. Pello Capital is authorised and regulated by the Financial Conduct Authority (“FCA”).
CCL is required to identify and manage conflicts of interest that may arise in its various areas of business to ensure that its customers are treated fairly. Under the Markets in Financial Instruments Directive (“MiFID”), CCL is further required to manage conflicts of interest where the Firm is carrying out a regulated activity or ancillary service and a conflict of interest may have a detrimental effect on clients in respect of such activity or service.
CCL provides a range of services to a number of different clients. For example, it provides advisory and execution dealing services for it’s retail and professional clients, discretionary investment management services and both corporate finance advisory and broking services to small and medium sized companies. It is therefore feasible to suggest that circumstances might arise whereby the interest of a client may conflict with the interests of the Firm or with those of another client. In particular, conflicts of interest may arise between:
- CCL and a client;
- Two or more clients of CCL in the context of the provision of services by CCL to those clients; and
- The personal interests of CCL’s officers and employees and a client.
For the purposes of this policy, clients include existing clients of CCL, potential clients (where the Firm is seeking to enter into a contractual relationship in respect of business services provided) and former clients where fiduciary or other duties remain in place.
Senior management of CCL will take all reasonable steps to identify conflicts between the Firm and it clients and one client and another. The Firm will maintain and operate effective organisational and administrative arrangements designed to prevent and manage conflicts of interest that pose a material risk of damage to client interests. It will also disclose any conflicts that cannot be managed effectively and will maintain records of the Firm’s services and activities in which conflicts have arisen or may arise.
Identification of Conflicts
To identify the types of conflicts of interest which may arise, CCL take into account whether or not the Firm, an officer or employee:
- Is likely to make a profit or a loss at the expense of the client;
- Has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of a client, which is distinct from the clients own interest in that outcome;
- Has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;
- Carries on the same business as the client;
- Receives or will receive from a person other than the client an inducement in relation to a service provided to the client; and
- Or could be in a position where its ability to act in a clients best interest is potentially affected by any other matter.
Conflicts of interest may arise in any number of situations and in identifying potential conflict of interest situations, CCL will consider the matters set out above. The Firm will also seek to identify any situation where the interests of one client may conflict with those of another, in order to ensure fair treatment for each client.
Examples of situations where conflicts may arise are where CCL:
- Provides research to investor clients in relation to a company where it also provides corporate finance advisory or broking services to the company;
- Provides investment advice or recommends a transaction to clients when it may have an interest, relationship or arrangement that is material in relation to the service concerned;
- Is the financial adviser or broker to the company whose securities investment clients are buying and selling;
- Acting for a corporate client operating in the same sector as another corporate client;
- Provides advice to investor clients in relation to the issue of securities where the Firm is assisting in the placing;
- Provides advice in relation to a debt issuance and is advising other clients as to the merits of investing in the debt;
- Is engaging in business and trading activities with two or more clients who are active in the relevant markets or otherwise interested at the same time;
- Receives payments or other benefits for giving business to another firm with which a client order is placed;
- Acts as the manager or investment adviser to a collective investment scheme in whose units clients are dealing;
- Provides investment advice, or discretionary portfolio management services to clients and recommends products issued by or services provided by the Firm or the Pello Asset Management group of companies;
- Matches one client’s transaction with that of another by acting on behalf of both clients; and
- An officer or employee engages in personal account dealing in respect of securities and the Firm has a client with an interest that potentially conflicts with such dealing.
This list is not exhaustive and senior management will consider all services and activities carried out by CCL in order to identify any conflicts that may arise. CCL or another company in the Pello Asset Management Group of companies may take a profit whilst undertaking any of these roles. CCL may also enter into transactions for clients under which clients sell an investment in which CCL, or another company in the Pello Asset management Group, may have had an interest in the previous 12 months.
The activities of CCL Corporate Finance include the provision of corporate finance advice, corporate broking and related services to small and mid-sized companies, including raising capital for these companies by assisting them to issue equity or, more frequently, utilise debt products. Whilst other departments, other companies in the Pello Asset Management Group or intermediaries of the Firm may introduce corporate clients to Corporate Finance, there is no obligation as to whether the Firm proceeds with such introductions. All proposed transactions, whether CCL’s own or third party IPOs and secondary issues the Firm offers it investor clients’ access to, will necessarily involve the CCL Investment Committee. This committee will, as a part of its defined decision making process, consider potential conflicts of interest.
CCL senior management have taken reasonable steps to identify, prevent, disclose or otherwise manage conflicts of interest and these are summarised below. It should be noted the Firm may also need to take additional steps on a case by case basis. Although CCL will endeavour to inform clients of any CCL interest before acting for the client, it has no obligation to obtain client consent to any such interest and any CCL interest shall not necessarily preclude the Firm from buying, selling or otherwise arranging such transactions.
The choice of what measures/combination of measures to put in place for the purposes of managing conflicts of interest is left to the discretion of CCL senior management, provided of course that the Firm takes all reasonable steps to manage its conflicts of interest.
The measures taken to manage conflicts of interest include:
- Integrity and Standards of Conduct – CCL insists that in its dealings with clients its officers and employees must apply the highest standards of integrity in their actions at all times and always act in the customers best interests. The induction, training and competence program of the Firm are designed to ensure that all relevant officers and employees are familiar with and observe the FCA Principles for Business, the Statements of Principle and Code of Practice for Approved Persons.
- Management Oversight – CCL senior management and Compliance will be alert to any potential conflicts and particularly those in respect of any new business activity. Any proposed new business activities and all corporate finance matters go through the Firm’s defined Investment Committee process.
- Confidential Information – All information obtained from a client or other source which has been provided in the expectation that it will be kept confidential shall be treated as such. CCL employees may not disclose any confidential information to any person who is not an officer or employee unless permitted by the terms of the transaction, law or regulation. In respect of all confidential information the need to know principle will be applied and all price sensitive information will be treated as confidential.
- Chinese walls – At CCL these information barriers comprise of administrative, internal arrangements and procedural controls designed to restrict the flow of price sensitive and confidential information. Effective information barriers allow CCL to manage conflicts of interest, rebut the presumption of imputed knowledge and maintain client confidentiality. Access to price sensitive and confidential information is restricted to those officers or employees who have a proper requirement for the information in the course of carrying out their duties and understand the implications for the business and its clients of being in receipt of such information. Within CCL the primary responsibility for managing corporate finance transactions together with the day to day relationship with corporate clients rests with Corporate Finance. Officers and employees who work in Corporate Finance are strictly prohibited from disclosing any price sensitive (non-public) information about corporate clients and potential corporate clients, to any other member of staff or any third party, except under controls which require that, if it is to be passed to an officer or employee on the other side of a Chinese wall, it must be authorised and recorded by Compliance.
- Independence policy – All officers and employees must disregard any of the following interests and must not allow the existence of such interests to influence them when dealing with clients or potential clients:
- Any personal interests which they or members of their family may have. Where appropriate, a client should be advised of such an interests, notwithstanding this policy;
- Any existing, proposed or prospective business relationship between any member of the Pello Asset Management Group of companies and any third party;
- Any agreement or transaction which has been, will or may be, entered into by any member of the Pello Asset Management Group of companies;
- The holding by, interest or position of any member of the Pello Asset Management Group in any investments issued by the client or any third party.
The above examples are not exhaustive and CCL, its officers and employees are required at all times to consider the need to act independently in any conflict.
- Best Execution – CCL’s policy for acting in the best interests of clients when executing orders or passing orders to third parties for execution are designed to ensure that the Firm meets its best execution obligations regardless of any other interests. A copy of CCL’s ‘Order Execution Policy & Execution Venues’ can be found on our website and in CCL’s terms of business Annex 3.
- Allocation – Before allocating investments to clients, CCL will comply with the regulatory obligation to assess suitability and appropriateness. It is the Firm’s policy to offer allocations to clients for whom the investment is suitable, or appropriate, who have sufficient funds in their account on the commitment date and who understand the investment terms and conditions and are willing to be bound by them (including any special considerations attached to placings). CCL’s policy is to allocate investments on a pro-rata basis whenever practical.
- Personal Account Dealing – It is not unusual for CCL officers or employees to undertake deals on their own behalf. This can create a conflict with duties owed to clients. Therefore all officers and employees and connected parties are required to comply with CCL’s PA Dealing policy which amongst other matters prohibits dealing ahead of client orders and restricts dealing in an investment in any client of CCL. The policy requires all officers and employees to declare any accounts held with external brokers and to have every transaction (save exempted transactions) approved prior to dealing.
- Provision of Investment Research and Advice – CCL produces a very limited amount of non-independent research which amounts to a marketing communication under FCA Rules. It is therefore not prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. However, as the Firm has an overriding duty to manage conflicts, it does not permit dealing ahead of its investment research. The Firm does not provide research coverage on a cross section of companies operating within the sectors that CCL follows, and much of the research published by CCL covers actual or potential corporate clients of the Firm. Due to the size and structure of the Firm, analysts are not physically segregated from sales by Chinese walls. However, CCL operates a clear desk policy, research is kept in lockable cabinets and officers and employees are aware that research is confidential in nature and must not be used for their benefit or the benefit of CCL. Also every effort is made to ensure the impartiality of research published by CCL. In particular, editorial control over draft research is retained by the analyst, although this may be submitted to the company and/or select CCL officers and employees for review of factual accuracy before publication. Analysts may also be involved in other activities with CCL. They may be encouraged to assist in the identification of corporate finance business opportunities and the provision of investment ideas to sales staff. They may also attend a pitch for potential corporate client’s business. Occasionally it may be necessary to bring analysts over the Chinese wall in respect of this business. In this case the analyst will typically be prevented from publishing research on the particular company. Decisions on analysts’ recruitment, remuneration and termination are the responsibility of CCL’s senior management and are not based on analysts expressing a specific view or recommendation about an issuer, security or industry. All research published by CCL will make the appropriate disclosure regarding any material interests of the Firm.
- Outside Interests – CCL officers and employees are required to spend the whole of their working time on the Firm’s business. Where an officer or employee has an outside interest, senior management must grant approval for this interest and in the event such interest may present conflicts, approval will not be granted. Compliance keep a register of outside business interests as part of its on-going compliance monitoring program. CCL officers and employees must also obtain approval to hold a directorship or other position in the client of the Firm.
- Remuneration – The remuneration of officers and employees usually consists of salary, a performance related bonus (which is totally discretionary) and in certain circumstances a long term incentive based on the overall profitability of the Firm. CCL will also remunerate its sales employees on a commission basis. Through these schemes, the Firm strives to ensure officers and employees remain motivated whilst at the same time ensuring that such schemes do not encourage inappropriate behaviour or excessive risk taking. Remuneration will never be directly linked to a specific transaction.
- Supervision and segregation of function – CCL has arranged for the separate supervision of those carrying out functions for customers whose interests may conflict, or where the interests of customers and the Firm may conflict. The Firm has taken steps to prevent the simultaneous or sequential involvement of a relevant person in separate services or activities where such involvement may impair the proper management of conflicts of interest.
- Inducements – CCL officers and employees are not allowed to accept gifts, entertainment or any other inducement from any person which might benefit one customer at the expense of another when conducting investment business. CCL gifts and entertainment policy is maintained and monitored by Compliance for the purpose of ensuring that the Firm always act in the best interests its clients.
- Disclosure – CCL shall use all reasonable efforts to manage any conflict of interest. If these efforts are not sufficient to ensure with reasonable confidence that the risk of damage to the interests of a client will be prevented, CCL will, where appropriate, disclose the general nature of the conflict in writing before undertaken business for the client. When considering whether it is appropriate to make such disclosure, the Firm will take into account the particular circumstances and whether such disclosure would contain sufficient information for the client to make an informed decision as to whether to proceed. It is CCL’s policy to disclose all material interests in relation to a specific transaction through its standard terms of business.
- Declining to Act – In the event that CCL determines that it is unable to manage a conflict of interest to protect a client’s interest, either by one or more methods described above or otherwise, it may decline to act on behalf of the client.
In accordance with regulatory requirements, CCL will keep and regularly update a record of the services and activities carried out by or on the behalf of the Firm in which a conflict entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an on-going service or activity, may arise. This register will be the responsibility of Compliance and the register will be used to update the conflicts policy as and when required.