AIFMD reporting – EMSA publishes an Opinion and updates its Q&As

On 28 May 2021, ESMA updated its Q&As on the application of the AIFMD, and published an Opinion on collecting information for monitoring systemic risk under Article 24(5) of the Directive.

ESMA's updates to its AIFMD Q&As

ESMA's update adds three new Q&As to each of its sections on 

• Reporting to national competent authorities under Articles 3, 24 and 42

• ESMA's guidelines on performance fees in UCITS and certain types of AIFs.

Dealing with these in turn:

Section III: Reporting to national competent authorities under Articles 3, 24 and 42

The three new questions (Q.84, Q.85 and Q.86) in this section look at (respectively)

(i) what risk is measured by

• NET DV01

• NET CS01 and

• Net Equity Delta and

(ii)  how these should be reported.

Section XV: ESMA's guidelines on performance fees in UCITS and certain types of AIFs

• Application of the ESMA performance fee guidelines to sub threshold AIFs

In new Q.4, ESMA confirms that ESMA's Guidelines on performance fees (the Guidelines) do not apply to sub-threshold registered AIFMs when marketing to retail investors. Instead registered AIFMs are only subject to the requirements referred to in Article 3 of AIFMD, which are outside the scope of the Guidelines.

That said, it is open to individual Member States to decide to impose stricter requirements and to allow registered AIFMs to market AIFs to retail investors in their jurisdictions under Articles 3(3) and 43(1) of AIFMD. In such cases, NCAs may also elect to apply the Guidelines to registered AIFMs

New Q.5 and new Q.6 follow the update to ESMA's Q&As on the application of the UCITS Directive published at the same time.

• The performance reference period and the benchmark model

Q.5 asks how the performance reference period for the benchmark model (under which performance fees may only be charged on the basis of outperforming the reference market index) should be set, based on paragraph 40 of the Guidelines.

ESMA confirms that paragraph 40 of the Guidelines recommends that:

• any underperformance of the fund against the benchmark index should be clawed back before any performance fee becomes payable and

• the length of the performance reference period, if shorter than the whole life of the fund, should be at least 5 years.

To comply with these recommendations, any underperformance should be brought forward for a minimum period of 5 years before a performance fee becomes payable - i.e., fund managers should look back at the past 5 years for the purpose of compensating underperformances.

Where the fund has overperformed the benchmark index, the fund manager should be able to crystallise performance fees.

• The performance reference period where funds have merged

Q.6 examines how a manager should the performance reference period be set where there is a merger, the receiving AIF is a newly established fund which has no performance history and it is, in effect, a continuation of the merging AIF.

ESMA states that, to ensure that the aim of the merger is not to reset the performance reference period, where the receiving AIF is a newly established fund with no performance history and the receiving AIF's NCA has assessed that the merger does not substantially change the AIF's investment policy, the performance reference period of the merging AIF should continue applying in the receiving AIF.

ESMA's Opinion on reporting information under AIFMD

The Opinion, which was published at the same time as the update to the Q&As, refers to ESMA's Final Report on guidelines on reporting obligations, the aim of which is to clarify the information that AIFMs should provide to their NCAs in order to comply with Articles 3(3)(d) and 24(1), (2) and (4) of the AIFMD.

ESMA notes that although the reporting template in Annex IV of the AIFMD Delegated Regulation sets out an extensive set of information which AIFMs must report to their NCAs, it believes that the effective monitoring of systemic risk potentially caused by one AIFM or a group of AIFMs would be facilitated if NCAs adopted a common approach when using their power to require additional information under Article 24(5) and that this additional information would also allow for a more comprehensive oversight of AIFM activities by supplementing reporting in such areas as risk measures and short positions.

The Opinion sets out details of additional information that ESMA considers NCAs could require AIFMs to report periodically under Article 24(5) of the AIFMD - in particular, it sets out clarification on three risk measures (value-at-risk, net FX delta and net commodity delta) by providing guidance to AIFMs, definitions of the relevant risk measures and practical examples to facilitate their reporting

Application to non-EU master AIFs not marketed in the EU

ESMA also points out that the Article 24(2) reporting obligations do not cover non-EU AIFs that are not marketed in the Union.  To ensure a comprehensive set of information for a proper assessment of systemic risk, ESMA considers that NCAs should require AIFMs that manage non-EU master AIFs that are not marketed in the EU to report the information requested by Article 24(2) - as well as the information under Article 24(1) - for these AIFs insofar as one of the feeder AIFs is an EU AIF or is marketed in the EU. ESMA does not expect NCAs to require this information if the non-EU master AIFs and the feeder AIFs do not have the same AIFM.

Other ESMA updates

At the same time as the changes to the AIFMD Q&As, ESMA published updates to its Q&As on

• the UCITS Directive - see our article here
• Sustainability-related disclosures for benchmarks - see our article here
• EMIR implementation
• MiFID II and MiFIR Investor Protection topics
• MiFIR data reporting topics
• SFTR reporting
• CSDR; and
• Securitisation.