Mon, May 2, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

ESMA seeks views on future rules for alternative investment fund managers

Friday, July 15, 2011

Steven Maijoor
Opalesque Industry Update - ESMA publishes today a consultation paper (ESMA/2011/209) setting out its proposals for the detailed rules underlying the Alternative Investment Fund Managers Directive (AIFMD). This is in response to the request for assistance which the European Commission sent to ESMAs predecessor, CESR, in December 2010. ESMA has to deliver its final advice to the Commission by 16 November 2011.

Steven Maijoor, Chair of ESMA, said: Delivery of the advice to the Commission on the AIFMD is one of ESMAs top priorities for 2011 and todays publication is a crucial step in achieving that objective. Indeed when finalised, these rules will increase transparency for investors and supervisors, and will significantly contribute to tackling the potential build-up of systemic risk. Input from all stakeholders to this consultation will be particularly vital for ESMA in shaping the final rules that will govern the European alternative investment fund industry.

The proposals published in ESMAs consultation paper (CP) today cover three broad areas:

1. General provision for managers, authorisation and operating conditions

As well as clarifying certain issues regarding the thresholds that determine whether a manager is subject to the Directive, this section includes such topics as valuation and delegation. On the issue of valuation, ESMA sets out draft advice on criteria for the proper valuation of assets by identifying general principles that should guide managers in developing and implementing policies and procedures for a proper and independent valuation of the assets of an alternative investment fund (AIF). As these are general princi-ples, they can be adapted to the types of asset in which an AIF may invest.

As far as delegation is concerned, ESMA has been asked to identify the criteria for objective reasons justi-fying a delegation. Here the proposals set out two options for consultation: the first takes a flexible ap-proach according to which a delegation can be justified where the manager can demonstrate that the delegation is done for the purposes of a more efficient conduct of the management of the fund; while the second option sets out an indicative, non-exhaustive list of criteria to be used when making the assessment.

2. Governance of AIFs depositaries

This part of the advice sets out ESMAs proposals on the framework governing depositaries of AIFs. In addition to the advice on the content of the written contract evidencing the appointment of the depositary and the clarification on the depositarys oversight duties, ESMA makes proposals on the key issue of de-positary liability. The first element of this relates to the circumstances in which a financial instrument held in custody should be considered as lost; this assessment is crucial in determining whether a depositary must subsequently return an asset. ESMAs proposals identify three conditions, at least one of which would have to be fulfilled in order for an asset to be considered lost. Another important concept which ESMAs advice aims to clarify relates to which events would constitute external events beyond the reason-able control of the depositary. Finally, the advice considers options for the objective reasons that would allow a depositary to contractually discharge its liability, such as legal constraints that give the depositary no choice but to delegate its custody duties to a third party.

3. Transparency requirements and leverage

One of the key objectives of the AIFMD is to help prevent the build-up of systemic risk. With this aim in mind, ESMAs proposals cover several issues related to leverage e.g. the definition of leverage, how it should be calculated and in what circumstances a competent authority should be able to impose limits on the leverage a particular manager may employ. Given the wide range of funds covered by the Directive and the diverse nature of the assets in which such funds invest, ESMA considers it appropriate to prescribe two different calculation methodologies for the leverage (commitment and gross methods) as well as a further option that can be used by managers on request and subject to certain criteria.

The AIFMD also aims to increase transparency of alternative investment funds and managers. In this context, ESMAs advice specifies the form and content of information to be reported to competent authori-ties and to investors. The advice also addresses the content and format of the annual report to be prepared for each fund. In this regard, ESMAs approach has been to recognise the existence of national and inter-national accounting standards already in place and to develop a compatible framework.

Next steps
Stakeholders have two months in which to give their feedback to ESMA. In light of the feedback received from respondents by the deadline of 13 September, ESMA will finalise its advice to the Commission in time for submission by 16 November.Source
PD

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Hedge funds see $14.3bn outflows in Q1, CTAs and multi-strategy lead net inflows[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry saw net outflows of investor capital in the first quarter of the year, totaling $14.3bn, data from Preqin showed. This continues from the $8.9bn overall net outflows that funds recorded in Q4

  2. Third Point calls Q1 "catastrophic" for hedge funds[more]

    Bailey McCann, Opalesque New York: The first quarter of this year was rocky for hedge funds based on aggregate performance from the industry, but now we are beginning to hear what the managers thought of it as quarterly letters make their way to investors. Dan Loeb, CEO of New York-based $17 bill

  3. Asia - Stabilization of China's capital outflows may hinge on Janet Yellen, Fink says China to do well this year as bubble threat postponed, Chinese hedge fund to invest in India’s infrastructure[more]

    Stabilization of China's capital outflows may hinge on Janet Yellen From Bloomberg.com: Whether China’s recent stabilization of its currency and capital outflows continues -- or downside pressure reignites -- may hinge in large part on Janet Yellen. If the Federal Reserve chair sticks to

  4. …And Finally - After all, judges are human too[more]

    From Newsoftheweird.com: In March, one District of Columbia government administrative law judge was charged with misdemeanor assault on another. Judge Sharon Goodie said she wanted to give Judge Joan Davenport some files, but Davenport, in her office, would not answer the door. Goodie said once the

  5. Comment - Unmasking the men behind Zero Hedge, Wall Street's renegade blog[more]

    From Bloomberg.com: Colin Lokey, also known as "Tyler Durden," is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the n