EUROPEAN UNION: ESMA Publishes Updated Q&A on AIFMD

Thursday December 3 2015

On 2^nd November 2015, the European Securities and Markets Authority (ESMA) published an updated question and answers on reporting to national competent authorities under Article 3, 24 and 42.

The following questions and answers have been added:

Question 67: According to questions 54 to 56 and 210 to 217 of the consolidated reporting template, AIFMs have to report on the jurisdictions of the three main funding sources (excluding units or shares of the AIF bought by investors) as well as on the aggregate amount of borrowing and cash financing. Should AIFMs include all liquidity that is made available to the AIF (including the cash received in the context of securities lending transactions and repurchase transactions), unless it originates from the payment of subscriptions related to units or shares of the AIF bought by investors?

Answer 67: Yes

Question 68: According to questions 121 to 124 of the reporting template for AIF-specific information, AIFMs have to categorise loans as either leveraged or other loans. ESMA guidelines provide that where a loan is syndicated the loan should be classified as ‘other’. How should a leveraged syndicated loan be classified for the purpose of completion of these questions?

Answer 68: To ensure consistency of reporting all leveraged loans, whether syndicated or otherwise, should be disclosed as leveraged loans.

Question 69: According to question 285 of the reporting template for AIF-specific information, AIFMs shall report information on collateralised/secured cash borrowing – via (reverse) repo. Should AIFMs report cash from repurchase agreements as cash borrowings?

Answer 69: Yes

Question 70: Question 66 clarifies that newly created AIFs should be included in the total AUM of the AIFM at the reporting date (question 33 of the reporting template for AIFM-specific information). Should information on newly created AIFs also be included in questions 26 to 32 of the reporting template for AIF-specific information?

Answer 70: No. Information on the newly created AIF(s) should only be included in the total AUM of the AIFM as reported at question 33 of the reporting template for AIFM-specific information.

Question 71: According to Article 2(4) of the implementing Regulation, AIFMs may exclude investments of AIFs in other AIFs they manage for the purpose of calculating the total value of assets under management. Does ESMA expect AIFMs to exclude such investments from the calculation of the total value of assets under management?

Answer 71: Yes. In order to ensure the comparability of the results at an EU level, it is important that AIFMs calculate their total value of assets under management in the same manner. In situations where feeder AIFs invest in master AIFs and where these are managed by the same AIFM, it is important to ensure that there is no duplication of assets under management.

Question 72: When reporting information on their investment strategies, should AIFMs report the investment strategy that corresponds to their portfolio of assets as at the reporting date or should they indicate the investment strategy that is disclosed to investors in the fund rules or other offering documents?

Answer 72: AIFMs should report the investment strategy that is disclosed to investors in the fund rules or other offering documents

Question 73: How should AIFMs determine the geographical focus of assets in which they invest such as stocks, bonds or financial derivatives (questions 78 to 85 of the consolidated template for AIF-specific information)?

Answer 73: AIFMs should take into account the domicile of the company/entity to which the AIFs have an exposure. For example, if an AIF invests in a stock of a company domiciled in Europe but traded in the US, the corresponding geographical area would be Europe and not North-America. Similarly, an AIF that invest in a bond issued in the US market by a company domiciled in the Europe should select Europe. For financial derivative instruments such as options, AIFMs should look at the financial instrument underlying the financial derivative instruments and apply the same approach as for stocks and bonds.

Question 74: Is information on gross and net investment returns, change in NAV, subscriptions and redemptions mandatory or optional?

Answer 74: This information is mandatory for Article 24(2) AIF reporting contents but, to enable the necessary functional flexibility, it is classified as optional from a technical standpoint. This information is optional from a technical standpoint because AIFMs only have to report this information for the months corresponding to the reporting period for which they report. For example, an AIFM that reports on quarterly basis will report in Q2 only information for April, May and June and not for January, February and March. Information on January, February and March would have been part of the report for Q1.

Question 75: When reporting information on leverage, should AIFMs report a ratio or a percentage?

Answer 75: AIFMs should report a percentage.

Question 76: When reporting the investment strategy of a feeder AIF, should AIFMs look through the master AIF?

Answer 76: 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.

Question 77: Should AIFMs include master/feeder structures when answering questions 290 to 293 of the consolidated template for AIF-specific information?

Answer 77: No

Question 78: Is information on liquidity profile mandatory or optional (questions 178 to 192 of the reporting template for AIF-specific information)?

Answer 78: This information is mandatory

Question 79: What information should AIFMs communicate when they report a total value of assets under management with a value of 0 at the AIFM level (question 33 of the reporting template for AIFM-specific information) or at the AIF level (question 48 of the reporting template for AIF-specific information)?

Answer 79: AIFMs should use the assumption boxes of the reporting template to explain why the total value of assets under management equals 0. For example, this may be because the assets of the AIF have been liquidated, merged with or transferred to another AIF or because the management of the AIF has been transferred to another AIFM.

Click on the link above for further details.