EUROPEAN UNION: ESMA Publishes Q and A Updates on AIFMD and UCITS Issues

Monday January 12 2015

The European Securities and Markets Authority (ESMA) has published updates to its questions and answers regarding the application of Alternative Investment Funds Manager Directive (AIFMD), guidelines on Exchange Traded Funds (ETFs), and other Undertaking for Collective Investment of Transferable Securities (UCITS) issues.

Updates to the following questions regarding the application of AIFMD are as follows:

How should AIFMs report information on subscriptions and redemptions over the reporting period?

ESMA clarifies that AIFMs should report the value of subscription and redemption orders and not the number of subscription and redemption orders. Information should be reported for the month of the cash-flows and not for the month of the subscription and redemption orders unless it is the same month.

How should AIFMs report information on the change in NAV per month?

ESMA clarifies that the change in NAV captures both the change due to subscriptions and redemptions and the change due to investment performance. It is the net effect on the fund’s NAV over the given reporting period after all inflows, outflows and performance are taken into account. AIFMs should report information on the change in NAV 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.

How should AIFMs report information on the percentage of gross and net investment returns per month?

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.

An AIFM manages both funds and funds of funds. When should the AIFM report aggregated information at the level of the AIFM?

The AIFM should report aggregated information at the level of the AIFM and on funds of funds no later than 45 days after the end of the reporting period. Information on AIFs that do not take the form of fund of funds should be reported 1 month after the end of the reporting period as required by Article 110 of the implementing Regulation.

Updates to the following questions regarding EFTs and other UCITS issues:

For the purpose of paragraph 39 of the guidelines, would the counter-party to a financial derivative instrument be considered as having discretion over the composition of the underlying assets of the financial derivative instrument under the following arrangement?

ESMA’s response is that in such circumstances the counterparty to the financial derivative instrument will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument.

When a UCITS reinvests cash collateral in short-term money market funds pursuant to paragraph 43 (j) of the guidelines, should the short-term money market funds comply with the requirements of Article 50(e)(iv) of the UCITS Directive (i.e. the short-term money market funds should not invest more than 10% of their assets in aggregate in other money market funds)?

ESMA’s response is that the requirement of Article 50(e)(iv) of the UCITS Directive also applies to short-term money market funds in which UCITS may reinvest cash collateral.

Click here to access updated AIFMD Q&A. Click here to access updated EFTs/UCITS Q&A.