Company and Client Risk Parameters.

Pursuant to the stipulations of paragraph 37(1) of Chapter.7 of Part C of the Directive DI144-2007-05 of the Cyprus Securities and Exchange Commission for the Capital Requirements of Investment Firms, the Company publish the following summary of the Risk Measurement procedures adopted by the Company.

Summary of Exposure and Management Approach to Operational and Credit Risk

The Company has a single financial services activity that of providing Investment Advice to Retail and Professional clients. In compliance with the regulatory requirements the Company has taken into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business.

The Company does not hold client's money or client's assets, and for that reason may not at any time place itself in debt with its clients. Client’s must be aware that for this reason, the Compensation Fund financed through the Regulatory body Cysec is not open to the Companies’ Clients.

Hedge Fund Exposure

The Company makes extended use of Hedge Funds. It is the case that Hedge Funds are still at the fringe of Regulatory supervision and can be both opaque and reticent (for valid reasons) about public scrutiny of their operations. When investigating Funds which might be suitable for presentation to clients the Company exercises due diligence to the extent that is reasonably practical, and the depth of measures to be followed is detailed in the Manual of Operations.

With Fund of Funds the prospectus will disclose the level of due diligence undertaken by the Manager when selecting Funds for investment; however the Company explores this further in interview with the Manager, and in the case of doubt, or missing data, will interview the underlying Funds before deciding whether or not the Fund of Funds can be listed as a suitable investment for Clients.

With single managers a risk remains that published information is misleading, or that figures are massaged for better effect or to obscure irregularities. For this reason the Company is very guarded towards accepting Single Manager funds into the Company portfolio. Where is becomes, compelling that a Single Manager fund would be of considerable value for Clients, due diligence will be carried out at a detailed level and possibly contracted out to professional investigators, and will be held at a limited percentage within a Client portfolio. Whilst taking due care in the investigations the Client is reminded that the Company carries no fiduciary responsibility and there is no recourse except through the Courts should a Fund be exposed as fraudulent. It has to be said however, that despite media attention, the number of fraudulent cases is in fact numerically very limited.

Company Risk Parameters.

In Observing and Reporting on factors likely to have a diluting influence on the Company stability, the Risk Manager will measure performance against the following parameters. The Control subjects, although interdependent and interacting are for the purpose of reporting, separated into a Company Risk and a Client Risk orientation.

Financial risk factors

The company is exposed to interest rate risk, credit risk, liquidity risk, currency risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the company to manage these risks are outlined below.

Interest rate risk.

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. The company's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

Credit risk.

Credit risk arises when a failure by counter party's to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. The Company has no significant concentration of credit risk. The company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables. Cash balances are held with high credit quality financial institutions and the Company has policies to limit the amount of credit exposure to any financial institution.

Liquidity risk.

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Company has procedures with the object of minimising such losses, such as maintaining sufficient cash and other highly liquid, current assets, and by having available an adequate amount of committed credit facilities.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions, and recognised assets and liabilities are denominated in a currency that is not the Company's measurement currency. The Company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to United States dollar and sterling. The Company's management monitors exchange rate fluctuations on a continuous basis and acts accordingly.

Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The regulatory minimum Tier 1, Tier 2 and Tier 3 Capital Adequacy Ratio for the eligible Own Funds of the Company is set at 8% on a risk weighted assets basis. At each semester the calculation of the Capital Adequacy Ratio, the risk weighted assets have shown to vary between 70% and 50%.

The Total Assets of the Company stand at approximately €400,000, Equity is represented by approximately by 60% Share Capital and 40% Retained Earnings.

Scope and nature of risk reporting and measurement procedures.

The Company has designated Board members assigned to Risk and Credit Management, and to Compliance Functions. Internal Auditing is outsourced to a competent professional organisation.

In Observing and Reporting on factors likely to have a diluting influence on the Company stability, the Risk Manager will measure performance against the following parameters. The Control subjects, although interdependent and interacting are for the purpose of reporting, separated into a Company Risk and a Client Risk orientation.

1. Company Risk

1.1 Expenditure

Any large Expenditure entries in the accounts are authorised as required by the Internal Operations Manual

1.2. Cash Resources

The Company will maintain Cash and Deposit balances sufficient to meet the prediction of cash flow for the forward six months, as predicted in the current Budget calculations.

1.3. Claims

The Company will maintain cover for Negligence and Omission by holding Professional Indemnity Cover equivalent to the level adopted by the European Commission.

1.4. Client Dependency

The policy adopted is that Single Client dependency should be limited to a level where the loss of a client will not lead to a severe detrimental reduction in the Company cash flow. A guidance level of 15% is set.

1.5. Currency

To avoid currency risk Deposits will be held in a mixture of Euro, US Dollar, and Sterling accounts.

1.6 Data Storage

Current electronic operational Back-Up Data will be held on two separate machines located at the company operational address and at a second separate location. Current financial Data will be stored on two separate machines at different locations, and key historical data held at the Auditor’s address.

1.7 Regulation Risk.

Should direct costs induced by meeting exigible Regulatory requirements exceed 10% of Gross Turnover, client Pricing Structures are to be reviewed. Should they exceed 20%, this would be considered as intolerable and alternative arrangements are to be sought. The loss of regulatory authorisation is covered in the Disaster Recovery manuals.

1.8 Disaster Recovery

Major potential Disaster Scenarios are discussed in a separate document.

2 Client Risk

2.1 Portfolio Risk

Clients will be advised to maintain their Portfolios generally within the standard ratios of 40 – 40 – 20 Risk pattern, unless the client has given contrary counsel. Where a Client determines to have a volatility risk demonstrably higher than the standard ratio, a written warning notice will be given.

2.2 Performance Risk

Advice on Investments will not be dictated by the need to achieve parity with the performance of a given Benchmark. Performance will be representative of a cautious long term approach to Investment Risk with a qualitative overlay derived from direct personal contact with Fund Managers and their peers. The long term influence of currency movement will be observed.

Performance will be compared with the C.S.F.B. Index and the M.S.C. Global Index.

2.3. Investment Risk

The selection of Funds to be introduced to clients will be based generally on the study of a minimum of 3 years historical or simulated pro-forma data where available, and will be of a Collective nature. The predominance of Funds will be of the style of Fund of Funds. In exceptional circumstances where the fund manager is known and has a discernible track record from previous employment, a recently launched fund will be considered.

Funds will have a Volatility for Cautious Risk of up to 8%, a Volatility for Balanced Risk of 8 – 16%, and a Volatility for Adventurous Risk of 16+%, and will average significantly below market level. Consideration will also be given to a positive Sharpe Ratio where 36 data points are available for analysis.

3. Operational Risk Assessment.

In examining the level of Business Risk, the Board recognise that there are those risks which the Company willingly assumes to create a competitive advantage and to add value to shareholders. In their examination of operations they will address any deviation between actual and expected risk and monitor events under the following headings.

3.1. Market Risk

Changes in market prices and rates which might reduce the value of the Company’s position will be regularly studied and on a weekly basis.

3.2. Directional Risk – in particular movements in interest and exchange rates possibly affecting the Company’s holdings, and New Activities will be analysed.

  • 3.2.1 Care will be taken to avoid Loss from unintentional or negligent failure to meet a professional obligation;
  • 3.2.2 Care will be taken to avoid Loss from unintentional or negligent failure towards a specific client; and for fiduciary; suitability; nature or design of product

3.3 Non-Directional Risks – other developments which might hazard the Company’s standing or Capital Adequacy will be scrutinised, such as:

  • 3.3.1 Internal Fraud - losses due to intended fraud or misappropriation of property, or circumnavigation of regulations;
  • 3.3.2 External fraud by a third party;
  • 3.3.3 Acts inconsistent with employment laws; personal injury claims;
  • 3.3.4 Loss arising from damage to physical assets;
  • 3.3.5 Loss from failed agreements with counterparties