Since the last issue of our Funds ezine, ESMA has twice updated its Q&A document on the application of AIFMD, firstly, on 27 June 2014 and most recently on 21 July 2014.

The updated Q&A document addresses several matters including, in particular, the following:

Remuneration Guidelines

AIFMs cannot choose to exclude portfolio managers from the scope of identified staff for the purpose of ESMA’s Remuneration Guidelines purely because they are bound by investment limits set out by law and/or internal risk limits set out in the investment restrictions of the AIF. The application of the Remuneration Guidelines will depend on a number of qualitative criteria. If, among other things, the performance of the portfolio manager is not monitored daily by the AIFM and the portfolio manager is not required to meet a performance benchmark, it is likely that the Guidelines will apply.

Reporting to National Competent Authorities

AIFMs must report specific information for all EU AIFs they manage or AIFs they market in the Union. “Union” includes the 28 EU Member States and, once the AIFMD has been incorporated into the EEA agreement, Norway, Iceland and Liechtenstein.

In accordance with Article 111, AIFs are considered as employing leverage on a substantial basis if the average daily calculation of the exposure exceeds three times the average daily calculation of the NAV. If the exposure is not calculated daily, AIFs can still be considered as employing leverage on a substantial basis if at least once during the reporting period its exposure exceeds three times its NAV.

MiFID Services under Article 6(4) of the AIFMD

The MiFID II Directive modifies the terms of AIFMD by providing that an AIFM authorised to provide MiFID investment services under Article 6(4) of AIFMD has the right to provide these services on a cross-border basis under the authorisation granted by the competent authorities of its home Member State. Member States must accept passport notifications from 3 July 2015 but are encouraged in the Q&A to accept passport notifications before that date.

Holdings in Collective Investment Undertakings

Unless units in collective investment schemes are directly registered with the issuer itself or its agent, in the name of the AIF or the AIFM, units of collective investment schemes should be held in custody and subject to the relevant provisions of AIFMD.

Calculation of Leverage

Pursuant to Article 6(3) of the Regulation supplementing AIFMD (Regulation 231/2013), exposure contained in any financial/legal structure controlled by an AIF shall be included in the calculation of the AIF’s leverage exposure. Debt raised to finance the acquisition of assets will be included in the calculation of the exposure where the following requirements are met:

• The structure was specifically set up to directly or indirectly increase the exposure at the level of the AIF
• The AIF controls the structure

Where the AIF does not have to bear losses beyond its investment, the financial structure should not be considered as having been set up directly or indirectly to increase the exposure at the level of the AIF.

Contributed by Vincent Coyne