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MFSA New Rules for Alternative Investment Funds

MFSA Releases Clarifications Regarding AIFMs Transparency Reporting

The Alternative Investment Fund Manager Directive (‘AIFMD’) introduced new rules for Alternative Investment Funds (‘AIFs’) (including hedge funds, private equity and real estate funds).   Previously these funds were regulated largely by national regimes and codes of conduct, rather than via a trans-European framework.

The AIFMD sought to create an EU framework for AIFMs as well as setting transparency requirements which would create a level playing field for investors.  Thereby, the investors must be privy to key information regarding the fund, such as investments strategy, special arrangements re: illiquidity such as side pockets, valuation procedures, fund leverage limits etc;

The AIFMD does not specify the medium in which the information is provided, nor the frequency of such disclosures.  Such disclosures may therefore be in the form of letters, newsletters, emails etc;  The medium and frequency of communication is a matter that is at the discretion of the AIF Manager and the AIF.  However, the disclosures must also be relayed to the national competent authorities of the AIFM.

The AIFMS also requires the inclusion of a list of systemic risk reporting, which include:

  • the breakdown of investment strategies of AIFs;
  • the principal markets and the financial instruments in which an AIF trades;
  • total value of assets under management of each AIF managed;
  • turnover of the AIFs;
  • principal exposures and most important portfolio concentration of the AIFs.

In the case of high-leveraged AIFs, the amount of leverage must also be disclosed.

The aforesaid transparency disclosure signal a marked change of route – in a sphere which until recently, was subject to slight regulation, on the understanding that professional investors, did not require the same level of protection as retail investors.  The transparency rules, have set a framework for uniform standards, allowing investors, even professional investors, to make an informed and thorough decision.

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