Disclosure and Reporting to Investors

• AIFMD Disclosure and Reporting Obligations
• Pre-Contractual Disclosures to Investors
• AIFMD
• AIFMD II
• SFDR
• SFTR
• Feeder AIFs and Fund of Funds
• Where to disclose

• Periodic Disclosures To Investors
• AIFMD
• AIFMD II
• Annual Report
• AIFMD
• SFDR
• SFTR
• Listed AIFs
• Standards and audit
• Leverage
• Broader Disclosure and Reporting Obligations
• CBDF marketing communications
• SFDR website disclosures
• Second Shareholders’ Rights Directive
• PRIIPs Regulation
• UK Implementation

AIFMD Disclosure and Reporting Obligations

AIFMD imposes requirements for information to be given to investors, both in the marketing process and on an ongoing basis.

Pre-Contractual Disclosures to Investors

AIFMD

Under Article 23 of AIFMD, for each EU AIF an EU AIFM manages and for each AIF either an EU AIFM or a non-EU AIFM markets in the EU, AIFMs must make certain information available to investors before they invest in the AIF, together with any updates. This information includes a description of:

• the investment strategy and objectives of the AIF and the techniques it may employ and all associated risks, any applicable investment restrictions and details in relation to any leverage and collateral and asset re-use arrangements (including the maximum level of leverage under the Gross Method and Commitment Method and if such limit has been set). It is a requirement for all AIFMs authorised under AIFMD to set such leverage limits in relation to each of the AIFs they manage;
• the procedures by which the AIF may change its investment strategy or investment policy;
• the main legal implications of the contractual relationship entered into for the purpose of investment (which will normally include the constitutional document(s) of the AIF and any subscription agreement), including information on jurisdiction, applicable law and the existence of any legal instruments providing for the recognition and enforcement of judgments in the territory where the AIF is established;
• the identity of the AIFM, the AIF’s depositary, auditor and any other service providers, together with a description of their duties and the investors’ rights in relation thereto;
• how the AIFM complies with the requirements to cover professional liability risks under the capital requirement provisions, i.e. either via additional own funds or professional indemnity insurance;
• any delegated management or depositary function and any associated conflicts of interest;
• the AIF’s valuation procedure and pricing methodology;
• the AIF’s liquidity risk management, including redemption rights;
• all fees, charges and expenses (including maximum amounts) borne by investors (including amounts borne indirectly by investors, e.g. fees and expenses at the master level for feeder funds);
• how the AIFM ensures fair treatment of its investors;
• any preferential treatment received by an investor (e.g. by way of a side letter);
• the latest annual report (see above);
• the procedure and conditions of issue and sale of units or shares;
• the latest net asset value of the AIF or the latest market price of the units or shares of the AIF according to the valuation provisions;
• where available, the historical performance of the AIF;
• prime brokerage arrangements;
• any arrangements made by the depositary to contractually discharge itself of its liability under AIFMD, together with any changes with respect to depositary liability; and
• how and when periodic disclosures will be made (see "Periodic disclosures to Investors" below).

SFDR

Under the SFDR, in addition to the items set out above, an AIFM’s Article 23 disclosures must also include:

• a description of whether, and if so, the manner in which sustainability risks are integrated into the AIFM’s investment decisions;
• a description of the results of the assessment of the likely impacts of sustainability risks on the returns of the AIF;
• (i) a clear and reasoned explanation of whether, and if so, how the AIF considers principal adverse impacts on sustainability factors (“PASI”); and (ii) a statement that information on PASI is available in the AIF’s annual report;
• in respect of any AIF which promotes environmental and/or social characteristics (an “Article 8 Fund”), information on how those characteristics are met; and
• in respect of any AIF which has sustainable investment as its objective (an “Article 9 Fund”), an explanation of how that objective is to be attained.

In respect of any Article 8 Fund or Article 9 Fund that has designated an index as a reference benchmark, certain additional information is required to be included in the Article 23 disclosures.

SFTR

Further, where AIFM authorised under AIFMD use SFTs, the SFTR imposes additional disclosure obligations on the AIFM. Under Article 14 of SFTR, AIFMs will be required to disclose the following information to investors in the prospectus or other pre-contractual disclosure document:

• a general description of the SFTs and total return swaps used by the AIFM and the rationale for their use;
• the following overall data for each type of SFTs and total return swaps:
• types of assets that can be subject to them;
• maximum proportion of AuM that can be subject to them; and
• expected proportion of AuM that will be subject to each of them;
• the criteria used to select counterparties (including legal status, country of origin, minimum credit rating);
• a description of acceptable collateral with regard to asset types, issuer, maturity, liquidity as well as the collateral diversification and correlation policies;
• a description of the collateral valuation methodology used and its rationale, and whether daily mark-to-market and daily variation margins are used;
• a description of the risks linked to SFTs and total return swaps as well as risks linked to collateral management, such as operational, liquidity, counterparty, custody and legal risks and, where applicable, the risks arising from its reuse;
• a description of how assets subject to SFTs and total return swaps and collateral received are safe-kept (e.g. with a custodian;
• a description of any restrictions (regulatory or self-imposed) on reuse of collateral; and
• a description of the proportions of the revenue generated by SFTs and total return swaps that is returned to the AIF, and of the costs and fees assigned to the AIFM or third parties (e.g. the agent lender). The prospectus or disclosure to investors shall also indicate if these are related parties to the AIFM.

Feeder AIFs and Fund of Funds

In addition, in relation to feeder AIFs, the pre-contractual disclosures need to include details on where the master fund is established and, in relation to fund of funds, details on where the underlying funds are established.

Where any information listed above is already disclosed to investors in an AIFMD-compliant prospectus, it does not need to be repeated.

Where to disclose

Whilst it is common practice to disclose the majority of the information listed above in the offering documents in relation to the AIF, it is not an obligation (in most EU jurisdictions and in the UK) to include all such information in the offering documents, provided that it will otherwise be made available to the investors before they invest (e.g. by way of a data room or an EU-specific wrapper).

Periodic Disclosures to Investors

AIFMD

Each AIFM must periodically disclose the following information to investors:

• the percentage of assets which are subject to special arrangements arising from their illiquid nature;
• any new arrangements for managing the liquidity of the AIF;
• the current risk profile of the AIF and risk management systems employed by the AIFM; and
• where an AIFM manages or markets in the EU an AIF employing leverage, it shall disclose on a regular basis, and without undue delay, the maximum level of leverage permitted (as well as any right of re-use of collateral or any guarantee granted under the leveraging arrangement) and the total amount of leverage employed by the AIF.

Articles 108 and 109 of the Level 2 Regulations set out detail on the content requirements for periodic disclosures in relation to the points listed above, and the mode and frequency of such disclosures.

Annual Report

AIFMD

Under Article 22 of AIFMD, audited annual reports must be made available by an EU AIFM for each EU AIF it manages and by both an EU AIFM and a non-EU AIFM for each AIF they market in the EU, within six months following the end of the financial year. The annual report must be provided to investors on request and made available to the home Member State regulator of the AIFM (for EU AIFMs) and, in case of an EU AIF, to the EU AIF’s home Member State regulator. A non-EU AIFM marketing an AIF in the EU under the NPPR will additionally have to make the annual report available to the relevant regulator in each Member State in which the AIF is marketed.

The annual report must disclose:

• a balance sheet or a statement of assets and liabilities (see Article 104 for the provisions of the Level 2 Regulations on the content of the balance sheet);
• an income and expenditure account for the financial year (see Article 104 for the provisions of the Level 2 Regulations on the content of the income and expenditure account);
• a report on the activities of the financial year (see Article 105 for the provisions of the Level 2 Regulations on the content of the report on the activities of the financial year);
• any material changes to the information that was disclosed to investors under AIFMD during the financial year in question. The provisions of the Level 2 Regulations on material changes may be found here, but essentially a change will be considered material for these purposes if there is a substantial likelihood that a reasonable investor, becoming aware of such information, would reconsider its investment in the AIF, including because such information could impact an investor’s ability to exercise its rights in relation to its investment or otherwise prejudice the interests of one or more investors in the AIF;
• total remuneration for the financial year (split into fixed and variable remuneration) paid by the AIFM to its staff members, the number of beneficiaries and, where relevant, carried interest paid by the AIF; and
• the aggregate amount of remuneration broken down by senior management and members of staff whose actions have a material impact on the risk profile of the AIF. Click here for the provisions of the Level 2 Regulations on remuneration disclosure.

SFDR

Under the SFDR, an AIFM’s Article 22 disclosures must also include:

• in respect of any Article 8 Fund, the extent to which the environmental and/or social characteristics promoted by the AIF have been met; and
• in respect of any Article 9 Fund, the overall sustainability-related impact of the AIF by means of relevant sustainability indicators. Additional disclosures are required where the Article 9 Fund has designated an index as a reference benchmark.

Both these Article 8 and Article 9 disclosures are required to be made in the format of a prescriptive annex, set out in the SFDR Level 2 regulatory technical standards.

SFTR

Further, under Article 13 of SFTR, an authorised AIFM’s Article 22 disclosure must also include the following information relating to how the AIFM makes use of SFTs and total return swaps:

• Global Data
• The amount of securities and commodities on loan as a proportion of total lendable assets defined as excluding cash and cash equivalents;
• The amount of assets engaged in each type of SFTs and total return swaps expressed as an absolute amount (in the AIF’s currency) and as a proportion of the AIF’s assets under management (AuM);
• Concentration Data
• 10 largest collateral issuers across all SFTs and total return swaps (break down of volumes of the collateral securities and commodities received per issuer’s name);
• Top 10 counterparties of each type of SFTs and total return swaps separately (name of counterparty and gross volume of outstanding transactions);
• Aggregate transaction data for each type of SFTs and total return swaps broken down according to the below categories
• Type and quality of collateral;
• Maturity tenor of the collateral broken down in the following maturity buckets: less than one day, one day to one week, one week to one month, one to three months, three months to one year, above one year, open maturity;
• Currency of the collateral;
• Maturity tenor of the SFTs and total return swaps broken down in the following maturity buckets: less than one day, one day to one week, one week to one month, one to three months, three months to one year, above one year, open transactions;
• Country in which the counterparties are established;
• Settlement and clearing (e.g., tri-party, Central Counterparty, bilateral);
• Data on reuse of collateral
• Share of collateral received that is reused, compared to the maximum amount specified in the prospectus or in the disclosure to investors;
• Cash collateral reinvestment returns to the AIF;
• Safekeeping of collateral received by the AIF as part of SFTs and total return swaps
• Number and names of custodians and the amount of collateral assets safe-kept by each of the custodians;
• Safekeeping of collateral granted by the AIF as part of SFTs and total return swaps
• The proportion of collateral held in segregated accounts or in pooled accounts, or in any other accounts; and
• Data on return and cost for each type of SFTs and total return swaps
• Data to be broken down between the AIF, the AIFM and third parties (e.g. agent lender) in absolute terms and as a percentage of overall returns generated by that type of SFTs and total return swaps.

Listed AIFs

Listed AIFs only need to provide investors with the information noted above on request (either separately or as part of the annual report). However, if it is included as an additional part of its annual financial report, then the information must be made available within four months of the end of the financial year.

Standards and Audit

Annual reports must be prepared in accordance with the accounting standards of the AIF’s home Member State or the third country where the AIF has its registered office. The information in the annual report needs to be presented in a manner that provides materially relevant, reliable, comparable and clear information.

The accounting information given in the annual report must be audited by an EEA auditor. For non-EU AIFs, certain individual Member States have allowed the annual report to be audited by an auditor meeting international standards and based in the country where the non-EU AIF has its registered office.

Leverage

Please click here for a summary of the investor disclosure requirements in respect of AIFs that employ leverage. 

Broader Disclosure and Reporting Obligations

In addition to the disclosure obligations listed above, there are other requirements for AIFMs to consider. Of particular importance are the following:

CBDF marketing communications

The CBDF Regulation requires EU AIFMs to ensure that all “marketing communications” addressed to investors are identifiable as such, the risks and rewards of purchasing units or shares are described in an equally prominent manner, and that all information included in marketing communications is fair, clear, and not misleading. Statements in marketing materials must not contradict or diminish the significance of information in other communications to investors (i.e. the Article 23 disclosures).

ESMA has issued guidelines on these. Our client note on the guidelines is available here.

SFDR website disclosures

As well as the additional Article 23 and Article 22 disclosures that will be imposed on AIFMs, the SFDR also requires AIFMs to make the following disclosures on their websites:

• information about their policies on the integration of sustainability risks into their investment decision-making process;
• where they consider PASI, a statement on due diligence policies with respect to those adverse impacts, and where they do not consider PASI, clear reasons for why they do not do so (including, where relevant, information as to whether and when they intend to consider such adverse impacts);
• information on how their remuneration policies are consistent with the integration of sustainability risks into their investment decision-making process; and
• in the case of any Article 8 Fund, (i) a description of the environmental and/or social characteristics promoted by the AIF, (ii) information on the methodologies used to assess, measure and monitor such environmental and/or social characteristics and (iii) the information included in the Article 23 and Article 22 disclosures as a result of the AIF being an Article 8 Fund; or
• in the case of any Article 9 Fund, (i) a description of the sustainable investment objective of the AIF, (ii) information on the methodologies used to assess, measure and monitor such sustainable investment objective and (iii) the information included in the Article 23 and Article 22 disclosures as a result of the AIF being an Article 9 Fund.

Second Shareholders’ Rights Directive (“SRD II”)

SRD II aims to encourage long-term shareholder engagement in listed companies and to improve transparency on shareholder engagement. SRD II has specifically imposed additional obligations on asset managers (including AIFMs) and institutional investors (i.e. certain life insurance firms and IORPs) who invest in shares traded on regulated markets.

In particular, asset managers will be required to annually disclose to institutional investors how their investment strategy contributes to the medium to long-term performance of the assets of the institutional investor or fund. The disclosure should include details such as portfolio composition, turnover, use of proxy advisors and the manager’s policy on securities lending.

PRIIPs Regulation

AIFs generally fall within the scope of the PRIIPs Regulation, which requires a standardised short form disclosure document known as a 'key information document' (a “KID”) to be provided wherever the AIF is made available to EEA-resident retail investors. The KID must be provided as a stand-alone document and shared with the retail investor prior to the conclusion of any transaction (i.e. the investor’s investment in the AIF).