What is leverage under AIFMD?
It defines leverage as “any method by which the AIFM increases the exposure of an AIF it manages whether through borrowing of cash securities, or leverage embedded in derivative positions or by any other means”.
Does AIFMD apply to UK?
While AIFMD no longer binds the UK in its implementation, the UK has put in place a domestic regime regulating the management and marketing of AIFs in the UK, which generally maintains the rules set out in AIFMD as implemented at the end of the Transition Period.
How is leverage calculated in AIF?
Leverage Ratio is calculated by dividing total exposure of the Category III AIF by the NAV of such Category III AIF. The Leverage Circular also provides that Leverage Ratio shall be calculated at the scheme level, therefore references to ‘AIF’ and ‘fund’ shall in this article shall be construed accordingly.
What is commitment leverage?
The commitment leverage method incorporates a different treatment of certain cash and cash equivalent items and of offsetting instruments between eligible assets to reflect netting and hedging arrangements in line with regulatory requirements.
Is leverage included in AUM?
All assets acquired through leverage must be included in the calculation (i.e. it is a gross asset value that must be determined).
How do you calculate gross leverage?
To do so, add the total value of long positions and the total value of short positions together in order to get the gross value of assets that the hedge fund has under its control. Then, dividend that figure by the total capital in the hedge fund. The resulting ratio gives the gross leverage.
Can a UK AIFM manage an EU AIF?
Under AIFMD, EU AIFMs may avail themselves of a pan-European management passport, enabling them to manage AIFs based in other EU Member States. After the end of the Transition Period, UK AIFMs no longer have passporting rights to manage EU AIFs and EU AIFMs may no longer exercise passporting rights to manage UK AIFs.
Who is subject to AIFMD?
All alternative investment funds managers established in the European Union, whether they manage EU or non-EU AIF, are subject to the AIFMD. The AIFMD also governs the marketing in the EU of AIF managed by an AIFM established outside the EU.
Can AIF units be pledged?
While the SEBI AIF Regulations do not permit Category I and II AIFs to employ leverage at the fund level, the Notification seems to permit non-resident investors to employ leverage on the units held by them in Investment Vehicles by permitting the creation of pledges over such units.
Does AUM include leverage?
Whether you’re at a debt fund or an equity fund, the AUM typically considered the equity you have in the fund itself, without factoring in leverage used in those transactions to boost returns.
Can UCITS use leverage?
To conclude, the ESRB itself notes that “the UCITS Directive includes specific limits on leverage. UCITS may borrow up to a limit of 10% of their net assets, and only on a temporary basis, for example for liquidity management purposes.
What is the commitment approach?
The Commitment Approach is a methodology that aggregates the underlying market or notional values of FDIs to determine the degree of global exposure of the Fund to FDIs.In accordance with the COLL Sourcebook, global exposure for a fund utilising the Commitment Approach must not exceed 100% of the Fund’s NAV.
What is the difference between gross leverage and net leverage?
Net debt shows how much debt a company has once it has paid all its debt obligations with its existing cash balances. Gross debt is the total book value of a company’s debt obligations.
What is leverage and hedging?
Hedge funds use leverage in a variety of ways, but the most common is to borrow on margin to increase the magnitude or “bet” on their investment. Futures contracts operate on margin and are popular with hedge funds. But leverage works both ways, it magnifies the gains, but also the losses.
What is the difference between UCITS and AIFMD?
The AIFMD applies to managers of funds that are not UCITS, including hedge funds, private equity funds, and real estate funds. Taken together, the UCITS Directive and the AIFMD provide for a comprehensive set of rules for fund management activities in the EU.
What is a UK AIFM?
The Alternative Investment Fund Managers Regulations (UK AIFMD) provide a regulatory framework for alternative investment fund managers (AIFMs), including managers of hedge funds, private equity firms and investment trusts.
What is the difference between AIFMD and UCITS?
AIFMD. The AIFMD applies to managers of funds that are not UCITS, including hedge funds, private equity funds, and real estate funds. Taken together, the UCITS Directive and the AIFMD provide for a comprehensive set of rules for fund management activities in the EU.
Can AIF borrow funds?
SEBI clarified that the provisions of AIF Regulations are silent on the entities from which an AIF can borrow. Hence, there is no express bar on a Cat II AIF to borrow funds from its manager. However, SEBI clarified that at all times; the AIF’s manager must comply with its fiduciary obligations towards its investors.
Can AIF give loans?
AIFs are Indian entities, and hence have more flexibility with respect to debt investment from an Indian regulatory perspective. However, AIFs are permitted to only invest in securities, and cannot have any direct loan exposure.
What is leverage in asset management?
Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.
What is leverage UCITS?
UCITS may borrow up to a limit of 10% of their net assets, and only on a temporary basis, for example for liquidity management purposes. Also, exposures related to derivatives and SFTs cannot exceed the total net value of the portfolio.
How much can a UCITS fund borrow?
Where a UCITS is authorised to borrow under points (a) and (b), such borrowing shall not exceed 15 % of its assets in total.
Can UCITS funds use leverage?
What is the commitment approach UCITS?
A UCITS IV fund, through its board of directors, has to select the approach that best fits the investment activities of the portfolio. In the Commitment Approach, the net exposure of derivatives cannot exceed 100% of the fund’s net asset value (NAV).
What is an acceptable leverage ratio?
A financial leverage ratio of less than 1 is usually considered good by industry standards. A leverage ratio higher than 1 can cause a company to be considered a risky investment by lenders and potential investors, while a financial leverage ratio higher than 2 is cause for concern.