On May 12th 2015, the European Securities and Markets Authority (“ESMA”) published an updated version of its questions and answers (“Updated Q&A”) on the application of the Alternative Investment Fund Managers Directive (“AIFMD”). The update of the Q&A contains clarifications on reporting and also answers some questions on the calculation of leverage.
Reporting
The Updated Q&A clarifies that in case of AIFMs that are sister companies and are owned by another AIFM, each AIFM should report individually to the competent authorities of their home Member State according to their own reporting frequency as calculated pursuant to Article 110 of Regulation 231/2013.
ESMA confirms that AIFMs should consider actual capital drawdowns and not commitments when they report information on subscriptions for AIFs pursuing private equity strategies.
The Updated Q&A clarifies the issue of the reporting obligations for registered AIFMs that decide to opt in under the AIFMD. Such AIFMs have to report to their national authorities, on an annual basis. In case the AIFM exceeds the threshold of Article 110 of Regulation 231/2013, more frequent reporting will be necessary.
It has also been clarified that the AIFMD, in Article 3, does not make any distinction between EU AIFMs and non-EU AIFMs. As a consequence, an under threshold, non-EU AIFM, which markets its AIFs in the Union under the private placement regime should report to the competent authorities where they market the AIFs, all the information required in Article 3(3) of the AIFMD. The competent authorities may however request additional information.
It is also confirmed that AIFMs should not consider distribution of dividends to investors as redemptions for the purposes of the questions relating to redemptions in the reporting template.
On the issue of whether the AIFMs should apply the same reporting frequency to AIFs that are sub-funds of the same umbrella AIF, the Updated Q&A clarifies that the reporting frequency should not be affected by the legal structure of the AIF, and each of the AIFs in the umbrella structure should be reported separately.
It is also confirmed that AIFMs should take into account cash and cash equivalents for the purposes of reporting the principal exposures of the AIF, the five most important portfolio concentrations and the main instruments in which the AIF is trading.
Lastly, the Updated Q&A confirms that the procedure for the first reporting of AIFs should be the same as for AIFMs.
Leverage
Regarding calculation of leverage, the Updated Q&A clarifies that when calculating the exposure under the commitment approach of an AIF, AIFMs should take into account the absolute value of all positions of their AIFs valued in accordance with Article 19 of the AIFMD and the criteria laid down in paragraph 2-9 of Article 8 of the Regulation 231/2013. With regard to derivative instruments, as indicated in Article 8(2)(a), AIFMs should convert each position into an equivalent position in the underlying assets using the methodologies set out in Article 10 (which refers to Annex II of Regulation 231/2013) and points (4) to (9) and (14) in Annex I of Regulation 231/2013.
March 2015
On March 26th 2015, the European Securities and Markets Authority (“ESMA”) published an updated questions and answers (“Updated Q&A”) on the application of the Alternative Investment Fund Managers Directive (“AIFMD”). The update of the Q&A relates to reporting, notification, leverage, additional own funds and scope of the directive.
Regarding the reporting aspect, the Updated Q&A clarifies that Alternative Investment Fund Managers (“AIFMs”) should take into account all the EU Alternative Investment Funds (“AIFs”) they manage and AIFs they market in the European Union to calculate the reporting frequency. The AIFM should therefore calculate a unique reporting frequency taking into account all the AIFs it markets in the Union and apply the same reporting frequency to all Member States where it markets its AIFs.
The Updated Q&A also provides clarification on reporting the total long and short value of exposures before currency hedging and reporting the results of stress tests.
The Updated Q&A explains that an AIFM that is already managing AIFs in a host Member State under Article 33 of the AIFMD and that wishes to manage a new AIF in that host Member State should not undertake a new notification under Article 33(2). The original notification should be considered valid for all the AIFs it intends to manage in that given Member State but an update should be sent to identify each new AIF to be managed and to clarify if the proposed new AIFs are of a different type from the ones specified in the original notification.
On the issue of the calculation of leverage the Updated Q&A clarifies that when calculating the exposure of an AIF in accordance with the gross method under Article 7(a) of Regulation 231/2013, the value of all cash and cash equivalents held in the base currency of the AIF should be excluded.
On the issue of additional own funds, the Updated Q&A indicates that AIFMs should exclude investments by AIFs in other AIFs they manage for the calculation of additional own funds. However, they should include investments by AIFs in other AIFs they manage for the calculation of additional own funds to cover potential liability risks arising from professional negligence under Article 9(7) of the AIFMD since this type of investment is viewed as increasing their operational risk.
Finally the updated Q&A clarifies that a Member State may allow authorised EU AIFMs to market to professional investors, in their territory only, units or shares of EU feeder AIFs which have a non-EU master AIF managed by a non-EU AIFM provided that the EU AIFM managing the EU feeder AIF fulfils certain conditions as set out in Article 36(1) (a) to (c).
It indicates that whether the non-EU AIFM managing the non-EU master AIFs has to be authorised or not under the AIFMD depends on the national law of the Member State transposing Article 36 of the AIFMD since Member States may impose stricter rules on the AIFM in respect of the application of Article 36 of the AIFMD.
January 2015
On January 9th 2015, the ESMA issued an updated version of its Q&A on the application of AIFMD (the “Q&A”).
New questions have been added to Section III of the document relating to “Reporting to national competent authorities under Articles 3, 24 and 42 (of AIFMD)” to clarify the data to be reported under the consolidated reporting template.
In relation to subscription and redemption orders the Q&A clarifies that AIFMs should report their value and not their number. Therefore information should be reported for the month of the cash-flows and not the month when the subscription and redemption orders happen unless they happen in the same month.
In relation to the reporting on the change in NAV per month (questions 243 to 254 of the consolidated reporting template) and on the percentage of gross and net investment returns per month (questions 219 to 242 of the consolidated reporting template) the Q&A clarifies that AIFMs should report the information for each month of the reporting period. If no official NAV is available for the calculation, AIFMs should use estimates of the NAV. In some cases (e.g. for AIFs investing in illiquid assets), the best estimate may be the previous NAV.
Finally the Q&A clarifies that where an AIFM manages both funds and funds of funds, aggregated information at the level of the AIFM and information on the AIFs that are funds of funds should be reported no later than 45 days after the end of the reporting period. Information on AIFs that are not fund of funds should be reported one month after the end of the reporting period.
July 2014
The “Questions and Answers” document (the “FAQ Document”) of the European Securities and Markets Authority (“ESMA”) in respect of Directive 2011/61/EU on alternative investment fund managers (“AIFMD”) was updated on July 18th 2014.
The following topics have been newly included/updated:
- Reporting to national competent authorities under articles 3, 24 and 42 of the AIFMD: an additional 14 questions have been added to this section of the FAQ Document, providing information on the practical content of the reporting documents which must be submitted by alternative investment fund managers (AIFMs) to their regulatory authority.
- The FAQ Document now provides a new section on the depositary regime. Questions regarding the scope, the extent of permitted delegation and the custodial function in general are being answered.
- In addition the FAQ Document now provides clarifications on the method of calculation of leverage for the purpose of the AIFMD and related rules and regulations.
June 2014
The ESMA published on February 2nd 2014 a FAQ Document on the practical application of the Directive 2011/61/EU on AIFMD.
The aim of the FAQ Document is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures by providing answers to questions posed by the general public and competent authorities.
On March 25th and June 27th 2014 ESMA updated the FAQ Document. The main amendments in March relate to the reporting requirements under article 24 of the AIFMD. ESMA has provided clarifications relating to among others:
- the consideration of repurchase transactions as financing operations.
- the use of the residual maturity as of the reporting date when reporting information on ‘instruments traded and individual exposures’.
- the date to submit the last report of an alternative investment fund (“AIF”) that has been liquidated or put into liquidation; such report should be submitted no later than one month after the end of the quarter in which the AIF has been liquidated or put into liquidation.
- investors liquidity shall be calculated by dividing the AIF’s net asset value among the period buckets depending on the shortest period within which investors are entitled, under the fund documents, to withdraw invested funds or receive redemption payments.
- the meaning of inception date; it shall be the date of authorisation of an AIF or of its establishment if authorisation is not necessary or if the AIF is only subject to registration obligations.
- the language of the reporting; ESMA recommends that it be English.
- the extent of the identification of the 5 biggest counterparties to whom the AIF has exposure; if they do not have BIC or LEI codes, in such case only the full name of the counterparty needs to be reported.
- the necessity to reply to questions 296 to 301 of the consolidated reporting template; this is only required by AIFMs managing AIFs employing leverage on a substantive basis.
The amendments made in June include the following:
- a new question 5 has been added to the section on remuneration clarifying when portfolio managers can be excluded from the scope of identified staff.
- 3 new questions are added to the section dealing with reporting clarifying what countries are covered by the term “EEA” and the “Union” and what the terms “mandatory”, “optional” and “conditional” mean in the technical guidance.
- Certain clarifications have been made around notifications of AIFMs under article 33 of the AIFMD.
- A new Section V on MiFID services has been added. The first question highlights the amendment to the AIFMD included in Directive 2014/65/EU (MiFID 2) on AIFMs authorised to provide MiFID investment services under article 6(4) of the AIFMD. Pursuant to the amendment such AIFMs have the right to provide those services on a cross border basis. Member States must allow such passporting of services from July 2015 but are recommended to do so even before.
