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Alternative Market Briefing

ESMA starts analysing EU alternative investment funds industry

Thursday, March 21, 2019

B. G., Opalesque Geneva:

The European Securities and Markets Authority (ESMA) reported that the EU alternative investment funds (AIF) sector in 2017, as measured by net asset value (NAV), amounted to €4.9tn (US$5.56tn) or nearly one third of the total EU fund industry - based on data from 26,378 AIFs, or 80% of the market. This is ESMA's first such report and it will be updated annually.

Funds of funds accounted for 16% of the industry, followed by real estate (RE) funds (11%), hedge funds (5%) and private equity funds (4%). The remaining AIFs accounts for close to two-thirds of the industry, which shows there may be a classification issue, which ESMA will look into.

Most AIFs are sold to professional investors (81%) but retail participation is significant (19%).

According to ESMA, the AIF market does not use much leverage, "except for hedge funds whose leverage stems mainly from their use of derivatives to increase their exposure (synthetic leverage), rather than from direct borrowing." The authority further notes that RE funds are exposed to significant liquidity risk.

"Our data analysis has highlighted some issues requiring further attention, including the issue of fund classification, while the liquidity mismatches identified in the real estate funds sector, with its important share of retail investors, indicates po......................

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