The guidelines (71-page / 711KB PDF), published by the European Securities and Markets Authority (ESMA), relate to the reporting requirements under the Alternative Investment Fund Managers Directive (AIFMD), which came into force in July. The regulator has also proposed that fund managers periodically report additional information on higher risk and higher frequency trades.
"One of the key objectives of the AIFMD is bringing the alternative fund world under supervision, thus providing more transparency to investors and regulators," said ESMA chair Steven Maijoor. "As the AIFMD came into force in July, both AIFMs and national supervisors now need to prepare for their regulatory filings as it is these reports which will enable supervisors to monitor the systemic risks of alternative investment funds."
ESMA's guidelines, and its opinion on additional reporting (2-page / 70KB PDF), would "help to standardise the reporting across the EU" and make it easier for national regulators to exchange information between themselves, ESMA and the European Systemic Risk Board (ESRB) on the investment strategies, exposure and portfolio concentration of individual funds, Maijoor said.
The final guidelines will now be translated into the official languages of the EU, at which point national regulators will have two months to confirm to ESMA whether they comply or intend to comply with them as part of their supervisory arrangements. ESMA guidelines are not legally binding, but regulators that decide not to adopt them will have to explain their reasons.
The AIFMD is intended to cover the management and administration of all 'collective investment undertakings' that are not subject to an existing collective of directives known as the Undertakings for Collective Investment in Transferrable Securities (UCITS) regime. It applies to any person or company whose regular business is managing one or more alternative investment funds including hedge funds, private equity funds, real estate funds and a wide variety of other types of institutional fund.
Under the AIFMD, fund managers must report certain information regularly to national supervisors. This is intended to give those supervisors "more comprehensive and consistent oversight" of fund managers' activities, according to ESMA. The new regime was due to be implemented into national laws by 22 July 2013, but existing fund managers will have a 12 month 'grace period' before the rules apply.
According to ESMA's guidelines, the reporting requirements cover turnover, principal exposures and most important portfolio concentration of a particular fund. AIFMs will also be required to provide a breakdown of each fund's investment strategy, the total value of assets under management in each fund and the principal markets and instruments in which that fund trades.
Among the additional information that fund managers could provide national regulators suggested in its opinion, ESMA has included information on the risk measures used for each fund, its liquidity profile and leverage. It has also produced some technical supporting material, including templates, which fund managers could use to provide this information to the relevant authorities.
"These latest developments continue the trend by the regulators to increase regulation in the alternatives space," said financial services expert Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com. "The danger with such moves is that they certainly increase costs for the industry, which may in the end affect innovation."