Disclosure and Reporting

• AIFMD Disclosure and Reporting Obligations
• Disclosure to Investors
• AIFMD
• SFTR
• SFDR
• Feeder AIFs and Fund of Funds
• Where to disclose
• Non-EU AIFMs
• Periodic disclosures
• Annual Report
• AIFMD
• SFTR
• SFDR
• Listed AIFs
• Standards and audit
• Reporting Obligations to Competent Authorities
• Information to be disclosed
• Feeder AIFs
• Disclosure frequency
• Leverage
• Broader Disclosure and Reporting Obligations
• Second Shareholders’ Rights Directive
• Sustainable Finance Disclosure Regulation
• UK Implementation

 

AIFMD Disclosure and Reporting Obligations

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

Disclosure 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 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).

SFTR

Further, where an EU AIF that is managed by an AIFM authorised or registered in accordance with AIFMD is a counterparty to securities financing transactions (“SFTs”), the Securities Financing Transactions Regulation (“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 AIF 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;
• a description of any restrictions (regulatory or self-imposed) on reuse of collateral;
• 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.

SFDR

Under the Sustainable Finance Disclosure Regulation (“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;
• if the AIFM does not, at AIFM-level, consider adverse impacts of its investment decisions on sustainability factors (“PASI”), a statement to that effect and the reasons therefor. If the AIFM does, at AIFM-level, consider PASI, then by 30 December 2022, it must include in its Article 23 disclosures (i) a clear and reasoned explanation of whether, and if so, how it considers PASI for the specific AIF 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 the case of an Article 9 Fund which invests in economic activities that contribute to an environmental objective, a description must be included of how and to what extent the investments underlying such Article 9 Fund are in economic activities that qualify as environmentally sustainable under Article 3 of the Sustainable Finance Taxonomy Regulation.

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.

Feeder AIFs and Fund of Funds

In addition, in relation to feeder AIFs, the pre contractual disclosures needs 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 of such information in the offering documents, provided 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).

Non-EU AIFMs

A non-EU AIFM marketing an AIF in the EU will not be subject to AIFMD’s requirements on professional liability risks, appointing a depositary, maximum level of leverage, valuation and liquidity risk management (subject to any express requirements in the national implementation of AIFMD in the relevant Member States). This means that unless, for example, the AIFM has imposed leverage limits or undertakes liquidity management, such AIFMs will not need to provide information on these points.

Periodic disclosures

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 national placement regimes 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 (click here for the provisions of the Level 2 Regulations on the content of the balance sheet);
• an income and expenditure account for the financial year (click here 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 (click here 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 for the provisions of the Level 2 Regulations on remuneration disclosure.

SFTR

Further, under Article 13 of SFTR, an AIFM’s Article 22 disclosure for EU AIFs 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.

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.

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.

Reporting Obligations to Competent Authorities

Information to be disclosed

An EU AIFM will be required to regularly report to the regulator of its home Member State on aggregated information on the main instruments in which it trades, the markets of which it is a member or actively trades and the diversification of the AIF’s portfolio, including its principal exposures and most important concentrations of each of the AIFs it manages.

An EU AIFM shall also provide the following information to the regulator of its home Member State:

• the percentage of the AIF’s assets subject to special arrangements arising from their illiquid nature;
• new arrangements for managing the liquidity of the AIF;
• the risk profile of the AIF and risk management systems employed;
• the main categories of assets in which the AIF is invested; and
• the results of stress tests required by AIFMD in respect of investment risk and liquidity risk.

The regulator of the home Member State could require additional information, including:

• the annual report of each EU AIF and each AIF marketed in the EU;
• a list of all AIFs which the AIFM manages for the end of each quarter; and
• additional information which the home regulator may require to monitor risk effectively.

A non-EU AIFM marketing an AIF it manages in the EU under the national placement regimes will have to report the information listed above to the relevant regulator in each Member State in which the AIF is marketed.

Feeder AIFs

When reporting information on a feeder AIF in a master/feeder structure, subject to specific requirements issued by particular Member States, it is not necessary to look through to the master AIF’s assets and trading activity. However, according to guidance issued by ESMA to national regulators, national regulators may seek additional information on the master AIF if the feeder AIF and the master AIF are managed by the same AIFM.

Disclosure frequency

The information must be provided to the regulator by the AIFM:

• on a half-yearly basis, if the total assets under management in relation to the portfolio of AIFs managed by it exceed either EUR 100m (if the underlying AIFs use leverage) or EUR 500m (if the underlying AIFs do not use leverage), but do not exceed EUR 1bn for each EU AIF;
• on a quarterly basis, if the total assets under management in relation to the portfolio of AIFs managed by it (excluding non-EU AIFs not marketed in the EU) and/or marketed in the EU exceed EUR 1bn;
• for AIFMs otherwise subject to the half-yearly reporting, on a quarterly basis in relation to those AIFs whose assets under management (on a single AIF basis and including any assets acquired through leverage) exceed EUR 500m; and
• on an annual basis, for unleveraged AIFs whose core investment policy includes investment in and acquiring control of Non-Listed Companies and Issuers.

Article 110 and Article 111 of the Level 2 Regulations set out further detail regarding the above reporting obligations. 

Leverage

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

Broader Disclosure and Reporting Obligations

In addition to the pre-contractual and periodic disclosure obligations listed above, website disclosures are gaining importance as a medium of transparency towards investors. Of particular importance for AIFMs are the following:

Second Shareholders’ Rights Directive

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.

Sustainable Finance Disclosure Regulation

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.
• 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 8 Fund.

Package Retail and Insurance-based Investment Products Regulation (“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).