On 11 July 2017, the European Securities and Markets Authority (ESMA) updated its Q&As, “Application of the AIFMD
” by including three additional questions regarding reporting information to national regulators.
The update sets out ESMA’s view in the following matters:
Q.65 - Converting total AuM into Euros
When converting the total value of assets under management (AuM) into Euros, the Alternative Investment Fund Manager (AIFM) should:
- use the rounded values of the Alternative Investment Fund (AIFs) in the base currency of the AIFs, and
- divide these rounded values by the corresponding rate of one unit of the base currency in Euros. (So, for an AIF with a base currency in US dollars, the AIFM would use the relevant European Central Bank (ECB) rate for the date of reporting and multiply the AIF’s rounded value in US dollars by the spot rate on that date.)
The AIFM 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
- 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.
Q.81 - Measuring exposure to a loan purchased in the secondary market
Where an AIF purchases a loan in the secondary market it will need to measure its exposure in relation to that risk. As the loan’s notional value may overestimate the risk exposure, the AIF should report the valuation of the loan, as reported in the calculation of its Net Asset Value (NAV).
So, if an AIF purchases a distressed and unlevered loan for €10 cash (without the use of leverage) and the notional amount of that loan (ie the outstanding principal) was €100, the AIF should report the amount it actually spent (€10) to acquire the loan (which corresponds to the maximum potential loss on the loan transaction) and not the AIF’s exposure with respect to that loan (which would be the notional amount of that loan, here, €100).
During the loan’s lifetime, the AIF should measure its exposure in relation to that loan using the same valuation rules as the ones used for the calculation of its NAV.
Q.82 - Currency for reporting an AIF’s NAV
For question 53 of the consolidated reporting template, an AIFM should report an AIF’s NAV in the base currency of the AIF.
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