1.1 Fundsmith LLP ("Fundsmith") is authorised by the Financial Conduct Authority ("FCA") as
a UCITS manager and a full scope UK alternative investment manager ("AIFM"). It is
therefore subject to:
1.1.1 the provisions of the Undertakings for Collective Investment in Transferable
Securities Directive 2009/65/EC (the "UCITS Directive");
1.1.2 SYSC 19E: UCITS Remuneration Code contained in the FCA's Handbook of
Rules and Guidance (the "UCITS Remuneration Code");
1.1.3 the guidelines on sound remuneration policies under the UCITS Directive
issued by the European Securities and Markets Authority (ESMA/2016/575)
(the "ESMA UCITS Remuneration Guidelines");
1.1.4 the provisions of the Alternative Investment Fund Managers Directive
1.1.5 SYSC 19B: AIFM Remuneration Code contained in the FCA's Handbook of
Rules and Guidance (the "AIFM Remuneration Code") and the accompanying
FCA guidance (the "FCA Guidance"); and
1.1.6 the guidelines on sound remuneration policies under the AIFMD issued by the
European Securities and Markets Authority (ESMA/2013/201) (the "ESMA
AIFMD Remuneration Guidelines").
The UCITS Remuneration Code and AIFM Remuneration Code each contain a set of
substantially similar Remuneration Principles (the "Remuneration Principles") which
should be considered by firms when establishing and applying their remuneration policies.
2. FUNDSMITH'S BUSINESS
2.1 Fundsmith was established in 2010 by its Partners. It is structured as a limited liability
partnership. The business is managed, owned and controlled by its Partners. Fundsmith is
a small firm, as at 31st December 2017, in addition to its 4 Partners, the firm had 23 employees.
2.2 As at 31st December 2016 Fundsmith was the manager of two UCITS funds: the Fundsmith Equity Fund (a UK openended
investment company) and the Fundsmith Equity Fund Feeder (a Luxembourg SICAV
which is a UCITS feeder fund). Fundsmith also managed two alternative investment funds:
the Fundsmith Equity Fund L.P. (a Delaware Limited Partnership) and the Fundsmith
Emerging Equities Trust plc (a London Stock Exchange Listed Investment Trust) (collectively
referred to as the "Funds”). In addition, Fundsmith manages a small number of discrete
portfolios for professional investors on substantially the same investment strategy as the
Fundsmith Equity Fund.
2.3 Throughout its business Fundsmith is focused on delivering superior investment
performance at a reasonable cost.
2.4 The same fundamental investment strategy applies across all of the Funds. It is a simple
buy and hold equity investment strategy. The Funds invest in a small number of high
quality companies, with the intention of holding them for the long term. The rigorous
research process of Fundsmith is central to the strategy. Fundsmith applies stringent
screening criteria and exacting analysis standards to potential investments before
admitting them to an "investable universe" of permitted stocks.
2.5 Sound and effective risk management is also a core element of the investment process. In
addition to day to day monitoring and oversight by a risk manager and a Partner, a Risk
Committee comprising two Partners, the compliance manager and the risk manager
formally reviews all portfolios on a quarterly basis and reports to the Partners. The
Partners formally review risk management quarterly but meet monthly in any event and
will address any ad hoc issues at their next meeting or, if necessary, as and when they
arise. These processes ensure that each Fund portfolio is managed in accordance with the
investment objectives and policies of the Fund and in a manner which complies with the
relevant regulatory requirements applicable to that type of Fund. None of the Funds invest
in complex instruments or in derivatives, nor are any of the Funds leveraged.
2.6 Minimising the costs incurred on behalf of investors in implementing the strategy is also a
core value of the business.
3. FUNDSMITH'S OVER-ARCHING PHILOSOPHY
3.1 Fundsmith has adopted a single remuneration policy which governs all personnel across
all elements of Fundsmith's business.
3.2 Fundsmith seeks to ensure that its remuneration policies and practices:
3.2.1 are consistent with and promote sound and effective risk management;
3.2.2 do not encourage risk taking which is inconsistent with the risk profiles and
constitutions of the Funds;
3.2.3 include measures to avoid conflicts of interest; and
3.2.4 are in line with Fundsmith's business strategies, objectives, values and longterm
interests and with those of the Funds which it manages.
3.3 The Partners understand that the ultimate objective of the UCITS and AIFM Remuneration
Codes is to ensure that remuneration practices, structures and incentives at Fundsmith do
not encourage any behaviour or activity which could be detrimental to, or conflict with,
the long term interest of the Funds and the investors in the Funds.
3.4 The Partners are the sole owners of Fundsmith LLP. All of the Partners have invested their
own money into the business. The firm's capital is derived entirely from the Partners
contributions of capital. All of the individuals who are Partners are involved in the
management of the business on a full time, executive basis. The Partners are each paid a
pre-determined, fixed proportion of Fundsmith’s net profits, in accordance with their
ownership of the partnership. The Partners do not receive any other form of remuneration from Fundsmith. The Partners do not receive any salary nor are they eligible for an award
of a discretionary bonus from Fundsmith. The Partners' profit share is totally dependent
on the overall profitability of the firm.
3.5 The Partners' interests are therefore totally aligned with and dependent upon the long
term profitability and sustainability of Fundsmith LLP. Given Fundsmith's single business
model, the long term profitability and sustainability of the firm is inextricably linked to the
management fees generated from managing the Funds and segregated accounts, as this is
the only source of the firm's revenue. In relation to each of the Funds and the segregated
accounts, Fundsmith receives a flat rate fee based upon the level of the assets under
management within the Fund portfolios and the segregated accounts. No performance
fees are levied. The assets under management depend on both investors being willing to
invest their money (and to continue to do so) and the ongoing investment performance of
the Fund or portfolio. It is,therefore, very much in Fundsmith's interests (and the Partners'
interests) to ensure that the Funds and portfolios perform well in a manner which is
consistent with their stated investment objectives. As a result there is a natural alignment
between Fund investors' interests, the interests of Fundsmith and the interests of the
3.6 In addition, a significant proportion of the Partners' investable wealth is invested in the
Fundsmith Equity Fund.
4. APPLICATION OF THE REMUNERATION POLICY
4.1 This policy applies to all staff (including the Partners) of Fundsmith.
4.2 Under the UCITS and AIFM Remuneration Codes, some of the Remuneration Principles are
directed at certain "Remuneration Code Staff", rather than all employees.
4.3 Remuneration Code Staff are, except where it is demonstrated that they have no material
impact on the risk profile of Fundsmith or the Funds:
4.3.1 senior management (i.e. those individuals who are FCA Approved Persons
performing a Significant Influence Function);
4.3.2 risk takers (i.e. those individuals responsible for making investment
4.3.3 heads of control functions (i.e. risk management, compliance, internal audit);
4.3.4 staff responsible for heading functions such as marketing, administration and
human resources; and
4.3.5 any individuals receiving total remuneration that takes them into the same
remuneration bracket as senior management and risk takers.
4.4 Remuneration Code Staff include relevant staff employed by any entity to which portfolio
management or risk management has been delegated. Fundsmith LLP delegates certain
stock selection and portfolio construction activities to Fundsmith Investment Services
Limited. Accordingly, relevant staff of Fundsmith Investment Services Limited are covered by this policy. Fundsmith Investment Services Limited is owned by the same Partners as
Fundsmith LLP. The Partners therefore receive dividends from Fundsmith Investment
Services Limited and one Partner also receives a fixed salary in relation to his employment
with Fundsmith Investment Services Limited. Neither the shareholder dividends nor the
fixed salary paid by Fundsmith Investment Services Limited is regarded by the
Management Committee as variable remuneration.
4.5 Fundsmith has considered carefully which of its staff (and those of Fundsmith Investment
Services Limited) are within the definition of Remuneration Code Staff. It has determined
that only the Partners are Remuneration Code Staff. In reaching this determination, the
Partners took the following into consideration:
4.5.1 The small size of the firm and its simple internal organisational structure.
4.5.2 The only persons with legal authority to bind Fundsmith as a firm are the
Partners. The Management Committee, which comprises only the Partners,
has day to day responsibility for the management and operation of the firm.
4.5.3 Fundsmith's investment selection process is strictly adhered to at all times.
Stocks are only selected for inclusion in a portfolio if they have already been
admitted to an "investable universe" of potential stocks. A stock can only be
admitted to the investable universe following rigorous analysis, following
which the Chief Investment Officer (who is a Partner) and the Head of
Research (who is a Partner) make a recommendation to the Partners as a
whole. A stock is only added to the investable universe with the agreement
of all Partners.
4.5.4 Portfolio construction (i.e. the process of selecting the stocks from the
investable universe for a particular Fund portfolio) is only undertaken by the
Chief Investment Officer or, in his absence, the Head of Research.
4.5.5 The Compliance Officer is a Partner.
4.5.6 None of the employees receives remuneration at a level which takes them
into the same remuneration bracket as the Partners.
4.6 As explained in paragraph 3.4 above, the only remuneration which the Partners receive
from Fundsmith LLP is a pre-determined, fixed proportion of Fundsmith’s net profits. The
Partners have concluded that as this is not related to individual or Fund performance and
cannot be varied it is not variable remuneration under the UCITS and AIFMD Remuneration
Codes. Accordingly a number of the Remuneration Principles relating to variable
remuneration are not relevant to the Partners' profit share in Fundsmith LLP. Nor are they
relevant to any payment of dividend which a Partner may receive as a shareholder in
Fundsmith Investment Services Limited. However, if it transpires that the Partners were
wrong to conclude that their profit share or dividends were not variable remuneration,
the Partners would have felt justified in dis-applying these requirements on grounds of
proportionality. This applies in particular to the requirements described in paragraphs 5.3.2 to 5.3.5 below. The concept of proportionality and its current application to
Fundsmith is discussed below in section 5.
5. FUNDSMITH'S APPROACH TO PROPORTIONALITY
5.1 Fundsmith is required to comply with the UCITS and AIFMD Remuneration Codes in a way
and to the extent that is appropriate to the firm's size and internal organisation and to the
nature, scale and complexity of the firm's activities.
5.2 The Partners, having considered in detail the ESMA UCITS Remuneration Guidelines, the
ESMA AIFMD Remuneration Guidelines and the FCA Guidance, have concluded that it
would not be proportionate to apply certain of the Remuneration Principles to its
Remuneration Code Staff and employees more generally.
5.3 In particular, the Partners have determined that the following Remuneration Principles (as
described in the UCITS Remuneration Code) need not be adhered to in their entirety:
5.3.1 Remuneration Principle 3 – Governance – disapplied in so far as it relates to
the establishment of a Remuneration Committee and the requirement to
have non-executives on the management body taking responsibility for the
adoption, implementation and review of the remuneration policy.
5.3.2 Remuneration Principle 5 (a) – Remuneration Structures – Assessment of
Performance – requirement not applicable to Remuneration Code Staff and
not applied on grounds of proportionality to non Remuneration Code Staff in
so far as it relates to assessing performance in the context of a multi-year
framework appropriate to the recommended holding period for investors in
5.3.3 Remuneration Principle 5 (e) – Remuneration Structures – A substantial
proportion of variable remuneration to be paid by way of Fund units, shares
or similar instruments subject to a retention policy – requirement not
applicable to Remuneration Code Staff and not applied at all on grounds of
proportionality to non Remuneration Code Staff.
5.3.4 Remuneration Principle 5 (f) – Remuneration Structures – A substantial
proportion of variable remuneration should be deferred – requirement not
applicable to Remuneration Code Staff and not applied at all on grounds of
proportionality to non Remuneration Code Staff.
5.3.5 Remuneration Principle 6 – Measurement of Performance including
adjustment mechanisms to reflect risks – requirement not applicable to
Remuneration Code Staff, but applied to non- Remuneration Code staff.
6. REMUNERATION POLICIES
Remuneration Structure and Core Policies
6.1 Fundsmith's remuneration policies reflect the fact that Fundsmith is a limited liability
partnership. A clear distinction is made between the Partners and the employees of the
6.2 Fundsmith's approach to remuneration is relatively simple, reflecting the size and internal
organisation of the business.
6.3 The Partners are each paid a pre-determined, fixed proportion of Fundsmith’s net profits,
in accordance with their ownership of the partnership. These ownership levels are written
into the Fundsmith Limited Partnership Agreement. The Partners do not receive any salary
nor are they eligible for an award of a discretionary bonus from Fundsmith. The Limited
Partnership Agreement (being the Firm’s constitutional document) has been drafted to
support the Firm’s continuation, and does not require payment to any exiting Partner.
6.4 The employees' remuneration package comprises:
6.4.1 a basic salary;
6.4.2 the possibility of being awarded an annual discretionary bonus; and
6.4.3 certain other benefits including personal pension contribution, season ticket
loans and bike scheme loans.
The basic salary of an employee is set at a competitive level, in line with current market
practice. It will always be at a sufficiently high level to allow for a fully flexible approach to
be taken to the possibility of awarding (or not awarding) an annual bonus.
The payment of a bonus is entirely at Fundsmith's discretion and will depend on both the
financial position of the firm and the outcome of the individual's performance review
which is undertaken at the end of each financial year. The performance review process
takes into account a range of factors including the individual's performance and their
broader contribution to the business. Those employees working in control functions such
as risk management or compliance have their personal objectives set by reference to their
specific functions and will be rewarded according to the achievement of those objectives,
rather than the performance of the business more generally. Any bonus payment for an
employee is agreed by unanimous consent of the Partners.
As far as pension benefits are concerned, Fundsmith contributes 2% of the employee’s
salary into a personal pension scheme. Employees may contribute as much as they wish,
in accordance with the normal rules governing personal pension schemes. The Firm's
policy is not to make any increases in pension contribution when someone leaves the firm.
6.5 Fundsmith does not guarantee any annual bonus award, except where this is absolutely
necessary in the context of hiring a new employee in the first year of their employment.
6.6 Fundsmith's policy is not to pay employees leaving the firm any early termination
6.7 Fundsmith staff (including the Partners) are not permitted to undermine the principles of
the UCITS and AIFMD Remuneration Codes by using personal hedging strategies,
remuneration-related insurance or liability-related insurance. Staff are not remunerated
with interests in the Funds and therefore have no reason to seek to hedge their liabilities.
This Remuneration Policy is supplemented by the Personal Account Dealing Policy.
6.8 Fundsmith is required to ensure that remuneration practices are consistent with, and
promote, sound and effective risk management. The remuneration policy should not
encourage risk taking which is inconsistent with the risk profiles of the Funds.
6.9 Fundsmith's investment strategy is described in detail at paragraphs 2.4 and 2.5. Sound
and effective risk management is a key element of Fundsmith's investment strategy. The
same strategy is adopted for all of the Funds and segregated accounts. The investment
process is rigorously adhered to at all times.
6.10 The Partner's profit share is dependent upon Fundsmith's overall profitability which in turn
is largely dependent upon the management fees received from the Funds. Fundsmith
charges the Funds competitive flat rate fees based on the level of assets under
management within the Fund. Performance fees are not charged. There is no financial
incentive to take risks which are not consistent with the risk profiles of the Funds.
6.11 The employees may be awarded an annual bonus, but this is entirely at Fundsmith's
discretion, and will depend on both the firm's profitability and the individual's
performance. Paragraph 6.4 describes the employee's performance review process more
fully. Fundsmith does not have any practice of remunerating its investment personnel for
generating high returns in the short term.
Alignment with Business Strategy and the Interests of the Funds
6.12 Remuneration practices must be in line with the business strategy, objectives, values and
interests of each of Fundsmith, the Funds and the investors and should include measures
to avoid conflicts of interest.
6.13 The remuneration policies are in line with Fundsmith's business strategy, objectives,
values and interests.
6.14 The Partners, as owners of the business, receive a profit share which is totally dependent
on the overall profitability of the firm. The alignment of the Partners' interests with those
of the Funds and investors is discussed in detail in paragraphs 3.3 to 3.6 above.
6.15 As far as employees are concerned, Fundsmith seeks to attract and retain high calibre staff.
The employee remuneration package is therefore competitive and reflects industry
market practice. As described in paragraph 6.4, annual bonus awards are entirely discretionary and depend on the performance of the individual as well as the firm itself.
In the opinion of the Partners, the pension policy in place does not pose any conflict with
the long term interests of the Funds or with the investors in those Funds.
6.16 The Partners have identified two primary types of risk which could arise within a typical
asset management business from inappropriate remuneration structures:
6.16.1 incentives related to investment performance, which could give rise to a focus
on short term investment performance and potentially increase the risks for
the investors; and
6.16.2 incentives related to sales, which could encourage employees to
inappropriately sell a Fund to investors for whom it is unsuitable.
The nature of Fundsmith’s business, the nature of the Funds which it manages and the
nature of its remuneration practices naturally mitigate these risks.
From an investment perspective the risk identified above is controlled through
Fundsmith's investment process and as noted above there is no incentivisation of
investment staff based on short term investment performance. Investment decisions are
only made by the Chief Investment Officer or in his absence the Head of Research, both of
whom are Partners.
From a sales perspective, given the clear and simple nature of the investment strategy, the
Funds are generally suitable for the majority of investor types, including retail investors.
Fundsmith emphasises the long term nature of the investment strategy in all Fund
literature and other documentation and seeks to ensure that investors understand that
the strategy is not appropriate for those seeking short term returns. The sales teams
performance is considered in the light of the net sales of the relevant Funds and will
therefore be negatively affected if investors sell their investment.
6.17 The Partners believe that the firm's remuneration practices are in line with the interests
of the Funds and the investors within the Funds.
7. GOVERNANCE AND REVIEW
7.1 This Remuneration Policy has been developed by the Management Committee comprising
all of the Partners in conjunction with the Compliance Manager. The Management
Committee is responsible for approving, maintaining and overseeing this policy and for
approving any exemptions or changes. The Remuneration Policy will be reviewed by the
Management Committee at least annually.
7.2 On an annual basis the Compliance Manager will support the Compliance Officer in
reviewing the firm's compliance with this Remuneration Policy. Any issues identified as a
result of this review will be reported to the Management Committee.
7.3 Taking into account Fundsmith's size, internal organisation and the nature, scope and
complexity of its activities and the size of the Funds which it manages, the Management Committee has determined that it would not be proportionate for Fundsmith to establish
a remuneration committee. All decisions on the remuneration of personnel are made by
the Partners, who own the business and are collectively responsible for remuneration
practices of the firm.
8.1 Fundsmith includes quantitative and qualitative remuneration disclosures in the annual
fund report for each Fund as required by the UCITS Directive and AIFMD.
8.2 This Remuneration Policy contains details of Fundsmith's remuneration policies and
practices for the firm as a whole. It is available on the Fundsmith website and to all staff