ESMA Issues Guidance on Hedge Fund Reporting Obligations under AIFMD

The European Securities and Markets Authority (ESMA) issued final guidelines clarifying the reporting obligations for hedge fund managers and other alternative investment fund managers under the Alternative Investment Fund Managers Directive. ESMA’s guidelines will require hedge fund managers and private equity fund managers to regularly report certain information to national regulators. The guidelines clarify provisions of the Directive on required information, which will help to have a more comprehensive and consistent oversight of the activities of hedge fund managers.

ESMA has also issued an opinion that proposes introducing additional periodic reporting including such information as Value-at-Risk of hedge funds or the number of transactions carried out using high frequency algorithmic trading techniques.

ESMA Chair Steven Maijoor said that one of the key objectives of the AIFMD is bringing the alternative fund world under supervision thus providing more transparency to investors and regulators. As the AIFMD came into force in July, both AIFMs and national supervisors have begun to prepare for their regulatory filings. Chairman Maijoor said that it is these reports that will enable regulators to monitor the systemic risks of alternative investment funds. In order to achieve this objective, he advised national regulators to receive all the necessary information in order to ensure an appropriate overview of the sector.

The guidelines and opinion are designed to standardize the reporting across the European Union. It will also facilitate the exchange of information between national regulators, ESMA and the European Systemic Risk Board.

Hedge fund managers and other alternative fund managers need to report investment strategies, exposure and portfolio concentration According to the ESMA guidelines, the key elements that hedge funds and private equity funds will have to report to national regulators include information on, the breakdown of investment strategies of funds, the principal markets and instruments in which the fund trades; the total value of assets under management of each fund managed; turnover of the funds; and the principal exposures and most important portfolio concentration of the funds.

ESMA also issued detailed IT guidance for the filing of the XML and the XSD schema that will facilitate the reporting by hedge fund and private equity fund managers to regulators.