The European Securities and Markets Authority (“ESMA”) published in December two updated versions of its questions and answers (“Updated Q&A”) on the application of the Alternative Investment Fund Managers Directive (“AIFMD”). The primary focus of first update of the Q&A published on December 2nd 2015 relates to clarifications on the reporting requirements. The second, published on December 15th 2015 answers questions relating to the depositary liability regime.
Reporting
ESMA has inter alia provided the following clarifications:
- When reporting on the jurisdictions of the three main funding sources, an AIFM should include all liquidity that is made available to an AIF, unless it originates from the payment of subscriptions related to units or shares of the AIF bought by investors.
- With regard to categorising loans as either leveraged or other loans, all leveraged loans should be classified as leveraged loans, whether syndicated or not.
- When reporting information on collateralised/secured cash borrowing – via (reverse) repo - the AIFM should also report cash from repurchase agreements as cash borrowings.
- ESMA clarified that AIFMs may exclude investments of AIFs in other AIFs they manage for the purpose of calculating the total value of AUM to ensure that there is no duplication of AUM.
- When reporting information on investment strategy, AIFMs should take into account the investment strategy of an AIF that has been disclosed to investors in the fund rules or other offering documents.
- AIFMs should determine the geographical focus of assets in which they invest such as stocks, bonds or financial derivatives. It has been confirmed that AIFMs should take into account the domicile of the company/entity to which the AIFs have an exposure. As an example, when an AIF invests in stock of a company domiciled in Europe but traded in the US, the geographical area would be Europe.
- When reporting information on leverage, AIFMs should report a percentage rather than a ratio.
- When reporting the investment strategy of a feeder AIF, ESMA expects that in most instances, feeder AIFs will have the same investment strategy as the master AIF, unless the investments made by the feeder AIF in other assets make the resulting strategy different.
- The disclosure of information on the liquidity profile of an AIF by the AIFM is mandatory.
Depositary liability
In the Updated Q&A of December 15th 2015 ESMA confirmed, that the depositary remains liable in the case of assets for which the depositary has safe-keeping duties on a look-through basis. For financial instruments held in custody to which the look-through requirements apply, the depositary is subject to the strict liability regime under article 21(12) AIFMD. For other assets to which the look-through requirements apply the depositary is subject to liability for losses suffered as a result of its negligent or intentional failure to properly fulfil its obligations. Neither the look-through approach nor liability provisions apply in the case of fund of funds or master-feeder structures provided they have a depositary which safe-keeps the fund’s assets appropriately.
ESMA Q&A on reporting requirements is available at:https://www.esma.europa.eu/sites/default/files/library/2015-1786_qa_aifmd_december_2015.pdf
ESMA Q&A on depositary liability regime is available at:https://www.esma.europa.eu/sites/default/files/library/esma-2015-1873_qa_aifmd_15_dec_2015.pdf
