Calculation of leverage
(Article 4(3) of Directive 2011/61/EU)
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
and the commitment method as set out in
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
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.
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:
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;
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;
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;
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;
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.
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:
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;
apply netting and hedging arrangements;
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;
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:
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
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:
it swaps the performance of financial assets held in the AIF’s portfolio for the performance of other reference
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;
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
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;
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:
the positions involved within the hedging relationship do not aim to generate a return and general and specific risks
there is a verifiable reduction of market risk at the level of the AIF;
the risks linked to derivative instruments, general and specific, if any, are offset;
the hedging arrangements relate to the same asset class;
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:
between derivative instruments, provided they refer to the same underlying asset, even if the maturity date of the
derivative instruments is different;
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.