info@matterhorn-rs.com +31854018256

AIFMD FAQ

How should AIFMs report Leverage?

This only concerns Authorised (non-Light) funds.

Under Construction.

AIF Question 294: Leverage of the AIF as calculated under the Gross Method

AIF Question 295: Leverage of the AIF as calculated under the Commitment Method

How does Matterhorn help?

Matterhorn automatically sets the Gross Leverage [294] as:
The Total AuM amount of the AIF [48] minus any Cash in Base Currency
divided by Total Net Asset Value of the AIF [53]
times 100%.

Cash in Base Currency is calculated as:
the sum of all POSITION records with Sub-Asset Type [65] equal to
“SEC_CSH_OTHC” (“Other cash and cash equivalents (excluding government securities)”)
with Currency of the exposure [128] equal to Base Currency [49].

Matterhorn automatically sets the Commitment Leverage [295] as:
The Total AuM amount of the AIF [48]
divided by Total Net Asset Value of the AIF [53]
times 100%.

What if this algorithm does not fit a fund?

Just overwrite our calculation by entering the leverage in our template on the FINANCE record (fields 294 and 295).

For more information, please contact us at support@matterhorn-rs.com or +31 85 401 8256.



Commission Delegated Regulation (EU) No 231/2013 - SECTION 2:

Calculation of leverage
(Article 4(3) of Directive 2011/61/EU)
Article 6
General provisions on the calculation of leverage
1. Leverage of an AIF shall be expressed as the ratio between the exposure of an AIF and its net asset value.
2. AIFMs shall calculate the exposure of the AIFs managed in accordance with the gross method as set out in Article 7 and the commitment method as set out in Article 8.
The Commission shall review, in the light of market developments and no later than 21 July 2015, the calculation methods referred to in the first subparagraph in order to decide whether these methods are sufficient and appropriate for all types of AIFs, or an additional and optional method for calculating leverage should be developed.
3. Exposure contained in any financial or legal structures involving third parties controlled by the relevant AIF shall be included in the calculation of the exposure where the structures referred to are specifically set up to directly or indirectly increase the exposure at the level of the AIF. For AIFs whose core investment policy is to acquire control of non-listed companies or issuers, the AIFM shall not include in the calculation of the leverage any exposure that exists at the level of those non-listed companies and issuers provided that the AIF or the AIFM acting on behalf of the AIF does not have to bear potential losses beyond its investment in the respective company or issuer.
4. AIFMs shall exclude borrowing arrangements entered into if these are temporary in nature and are fully covered by contractual capital commitments from investors in the AIF.
5. An AIFM shall have appropriately documented procedures to calculate the exposure of each AIF under its management in accordance with the gross method and the commitment method. The calculation shall be applied consistently over time.
Article 7
Gross method for calculating the exposure of the AIF
The exposure of an AIF calculated in accordance with the gross method shall be the sum of the absolute values of all positions valued in accordance with Article 19 of Directive 2011/61/EU and all delegated acts adopted pursuant to it.
For the calculation of the exposure of an AIF in accordance with the gross method an AIFM shall:
(a)
exclude the value of any cash and cash equivalents which are highly liquid investments held in the base currency of the AIF, that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond;
(b)
convert derivative instruments into the equivalent position in their underlying assets using the conversion methodologies set out in Article 10 and the methods set out in paragraphs (4) to (9) and (14) of Annex I;
(c)
exclude cash borrowings that remain in cash or cash equivalent as referred to in point (a) and where the amounts of that payable are known;
(d)
include exposure resulting from the reinvestment of cash borrowings, expressed as the higher of the market value of the investment realised or the total amount of the cash borrowed as referred to in paragraphs (1) and (2) of Annex I;
(e)
include positions within repurchase or reverse repurchase agreements and securities lending or borrowing or other arrangements in accordance with paragraphs (3) and (10) to (13) of Annex I.
Article 8
Commitment method for calculating the exposure of an AIF
1. The exposure of an AIF calculated in accordance with the commitment method shall be the sum of the absolute values of all positions valued in accordance with Article 19 of Directive 2011/61/EU and its corresponding delegated acts, subject to the criteria provided for in paragraphs 2 to 9.
2. For the calculation of the exposure of an AIF in accordance with the commitment method an AIFM shall:
(a)
convert each derivative instrument position into an equivalent position in the underlying asset of that derivative using the conversion methodologies set out in Article 10 and paragraphs (4) to (9) and (14) of Annex II;
(b)
apply netting and hedging arrangements;
(c)
calculate the exposure created through the reinvestment of borrowings where such reinvestment increases the exposure of the AIF as defined in paragraphs (1) and (2) of Annex I;
(d)
include other arrangements in the calculation in accordance with paragraphs (3) and (10) to (13) of Annex I.
3. For the purposes of calculating the exposure of an AIF according to the commitment method:
(a)
netting arrangements shall include combinations of trades on derivative instruments or security positions which refer to the same underlying asset, irrespective — in the case of derivative instruments — of the maturity date of the derivative instruments and where those trades on derivative instruments or security positions are concluded with the sole aim of eliminating the risks linked to positions taken through the other derivative instruments or security positions;
(b)
hedging arrangements shall include combinations of trades on derivative instruments or security positions which do not necessarily refer to the same underlying asset and where those trades on derivative instruments or security positions are concluded with the sole aim of offsetting risks linked to positions taken through the other derivative instruments or security positions.
4. By way of derogation from paragraph 2, a derivative instrument shall not be converted into an equivalent position in the underlying asset if it has all of the following characteristics:
(a)
it swaps the performance of financial assets held in the AIF’s portfolio for the performance of other reference financial assets;
(b)
it totally offsets the risks of the swapped assets held in the AIF’s portfolio so that the AIF’s performance does not depend on the performance of the swapped assets;
(c)
it includes neither additional optional features, nor leverage clauses nor other additional risks as compared to a direct holding of the reference financial assets.
5. By way of derogation from paragraph 2, a derivative instrument shall not be converted into an equivalent position in the underlying asset when calculating the exposure according to the commitment method if it meets both of the following conditions:
(a)
the combined holding by the AIF of a derivative instrument relating to a financial asset and cash which is invested in cash equivalent as defined in Article 7(a) is equivalent to holding a long position in the given financial asset;
(b)
the derivative instrument shall not generate any incremental exposure and leverage or risk.
6. Hedging arrangements shall be taken into account when calculating the exposure of an AIF only if they comply with all the following conditions:
(a)
the positions involved within the hedging relationship do not aim to generate a return and general and specific risks are offset;
(b)
there is a verifiable reduction of market risk at the level of the AIF;
(c)
the risks linked to derivative instruments, general and specific, if any, are offset;
(d)
the hedging arrangements relate to the same asset class;
(e)
they are efficient in stressed market conditions.
7. Subject to paragraph 6, derivative instruments used for currency hedging purposes and that do not add any incremental exposure, leverage or other risks shall not be included in the calculation.
8. An AIFM shall net positions in any of the following cases:
(a)
between derivative instruments, provided they refer to the same underlying asset, even if the maturity date of the derivative instruments is different;
(b)
between a derivative instrument whose underlying asset is a transferable security, money market instrument or units in a collective investment undertaking as referred to in points 1 to 3 of Section C of Annex I to Directive 2004/39/EC, and that same corresponding underlying asset.
9. AIFMs managing AIFs that, in accordance with their core investment policy, primarily invest in interest rate derivatives shall make use of specific duration netting rules in order to take into account the correlation between the maturity segments of the interest rate curve as set out in Article 11.

About Matterhorn

Matterhorn Reporting Services is a RegTech company helping financial organizations to meet the challenges of an increasingly complex international regulatory environment. We do this by offering our Regulatory Reporting Hub (RegHub) applications that streamline and simplify your compliance and reporting obligations.

Our knowledgeable consultants constantly monitor the evolution of the different regulations and ensure our applications are always kept up-to-date.

Get started today

Secure AIFMD Annex IV reporting in three simple steps: import, inspect and report.