The role of the RP Gamma fund as a capital markets risk insurer is a typical feature of the market-making activities of investment banks and it is known to be one of the most profitable operating segments within financial institutions. However, while it is hard to get the management of a bank aligned to the interests of its shareholders, we at RP Crest have truly aligned our interests to those of the risk bearers, namely our fund investors.
We achieve this by means of our unique business and governance model©. As stipulated in the articles of association of RP Crest, the variable portion of all employees’ compensation can only be realised via a mandatory 50% profit-sharing scheme. Thus, in effect the employees own 50% of RP Crest – a sustainable business development must therefore be their objective.
Furthermore and most importantly, half of the employees’ profit participation must be paid in the form of shares in the Partners Blend fund, which has a minimum holding period of three years and must invest all its proceeds with a leverage of at least two into the RP Gamma fund. As a result, all employees act in the full knowledge that in any given year a drawdown in the order of 20% would about halve their accumulated profit share of the past three years. And larger losses could actually wipe out their profit participation.
In addition, the founder, majority shareholder and CIO of RP Crest as well as all other shareholders involved in risk management are required to invest at least 30% of their shareholder profits in the Partners Blend fund* until the company reaches its tenth anniversary in 2021, meaning that these assets are also held on a leveraged basis in the RP Gamma fund.
The entrepreneurial investment, the leverage and the holding period of the Partners Blend fund create a unique incentive for disciplined risk management and positive performance over the long term. The profit participation paid via shares in the Partners Blend fund will only persist or increase in value if the positive performance of the RP Gamma fund is sustained for at least three years. As a result, RP Crest employees can only receive positive cash flows from their personal investment in RP Crest if the fund is still performing at a satisfactory level after three years. The three-year period starts anew on a yearly basis.
*Or use the proceeds to buy shares of RP Crest GmbH