EUROPEAN UNION: ESMA Update AIFMD Q&A’s

Friday July 14 2017

The below AIFMD questions have been updated by the European Securities and Markets Authority (ESMA):

Q65. How should AIFMs convert the total value of assets under management into Euro?

First of all, AIFMs should use the rounded values of the AIFs in the base currency of the AIFs. Then, AIFMs should divide these rounded values by the corresponding rate of one unit of the base currency in Euros. For example, if the base currency of an AIF, reporting for 31 March 2015, is the US dollar and is using the ECB rate, AIFMs should multiply the rounded value in US dollar of the AIF by 0.9312, which was the spot rate on that date.

AIFMs should report the rounded values in Euro and in the base currency in questions 33 and 34 of the consolidated reporting template for AIFM-specific information and in question 48 in Euro of the consolidated reporting template for AIF-specific information. AIFMs should also report the value of the exchange rate used for the conversion in question 37 of the consolidated reporting template for AIFM-specific information and in question 50 of the consolidated reporting template for AIF-specific information.

Q81. In a situation where an AIF purchases a loan in the secondary market, how should the AIF measure its exposure in relation to that loan?

In this case the notional value of the loan may overestimate the risk exposure. Therefore, the AIF should report the valuation of the loan, as it is reported in the calculation of its NAV. For example, if an AIF purchases a distressed and unlevered loan for €10 cash (without the use of leverage) and the notional amount of that loan (i.e. the outstanding principal) was €100, the AIF should report the amount it actually spent to acquire the loan i.e. €10, which corresponds to the maximum potential loss on the loan transaction, not the AIF’s exposure with respect to that loan which would be €100 (i.e., the notional amount of such loan). During the life of the loan, the AIF should then measure the exposure in relation to that loan using the same valuation rules as the ones used for the calculation of its NAV.

Q82. In which currency should the NAV of the AIF (question 53 of the consolidated reporting template) be reported?

AIFMs should report the NAV in the base currency of the AIF.

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