The European Securities and Markets Authority (ESMA) has updated its Questions and Answers on the application of the Alternative Investment Fund Managers Directive (AIFMD).

Specifically, ESMA has added two new Q&As, providing clarification on the calculation of leverage under AIFMD:

  • The treatment of short-term interest rate futures for the purposes of AIFMD leverage exposure calculations according to the gross and commitment methods
  • The required frequency of the calculation of leverage by an AIFM managing an EU AIF which employs leverage.

Question 6 [Last update 29 March 2019]: Should the calculation of leverage exposure of an AIF resulting from a short-term interest rate future be adjusted for the duration of the future, under the gross and the commitment methods?

Answer 6 [Last update 29 March 2019]: No. The calculation of leverage exposure of an AIF resulting from a short-term interest rate future should not be adjusted for the duration of the future. Subparagraph (a) of paragraph (1) of Annex II of the Commission Delegated Regulation (EU) No 231/2013 sets out the method to be applied, when converting all interest rate futures into equivalent positions in the underlying asset in the process of calculation of exposure of the AIF, as the product of the number of contracts and the notional contract size. The duration of the financial instrument should not be considered for the purpose of that calculation.

This does not, however, preclude AIFMs managing AIFs that, in accordance with their core investment policy, primarily invest in interest rate derivatives from applying duration netting rules under the commitment method, in accordance with paragraph (9) of Article 8 of the Commission Delegated Regulation (EU) No 231/2013.

Question 7 [Last update 29 March 2019]: How frequently should an AIFM calculate the leverage of each AIF that it manages?

Answer 7 [Last update 29 March 2019]: An AIFM should calculate the leverage of each AIF that it manages as often as is required to ensure that the AIF is capable of remaining in compliance with leverage limits at all times. Consequently, leverage should be calculated at least as often as the NAV is calculated, or more frequently if required. Circumstances which may lead to increased frequency of leverage calculation include material market movements, changes to portfolio composition and any other factors the AIFM believes require calculation of leverage more frequently than NAV in order for the AIF to remain in compliance with leverage limits at all times.

For more on our AIFMD reporting platform Consensus, click here.

Subscribe to CSS Blog

CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

Loading form...

Latest Content

Form CRS and Its Impact on State-Registered Advisers

While many investment advisers are starting to plan for Form CRS/Form ADV Part 3, one group of investment advisers can breathe a sigh of relief that this is a project that does not need to be on their ‘To Do’ list. As of now, no state regulator has adopted this disclosure document for state-registered advisers. … Continued

Effective Compliance Policies & Procedures and Annual Reviews: Meeting the Reasonably Designed Standards

Investment Advisers must perform an annual evaluation of the effectiveness of their compliance program. This starts with ensuring, maintaining and implementing reasonably designed policies and procedures. This ComplianceCast webinar covers the recent regulatory changes that may trigger a need to reevaluate your present policies. Who Conducts and How to Conduct the Annual Review Planning and … Continued

7 Reasons to Attend Our Scottsdale Fall 2019 Compliance Conference

If you’ve been considering joining us in Scottsdale for our Sept. 23-25 compliance event, here are seven reasons you should take the plunge now! The Best Mix of Informational & Educational Speakers – We just added OCIE’s Co-National Associate Director of Investment Adviser/Investment Company Examination Program Marshall Gandy to our stellar list of presenters. He joins ex-NFL star Merril … Continued