CP12/32: Implementation of the Alternative ... - BVCA admin

November 2012
CP12/32
Implementation of the Alternative Investment Fund Managers Directive
to apply this rule for all AIFs, noting that unleveraged closed-ended AIFs may also have
occasional redemptions.
8.12 ESMA’s draft RTS on types of AIFM are expected to address the difference between a
closed-ended AIF and an open-ended AIF. We therefore do not propose our own definition
of a closed-ended AIF for FUND 3.6.
8.13 The requirements on AIFMs to disclose and report on liquidity management are explained
in Chapter 6 (Transparency).
Exceptional measures
8.14 Where an AIFM considers the use of exceptional liquidity measures such as gates, side
pockets, lock-ups, notice periods, redemption penalties or suspensions, this must be done
in accordance with the AIF’s liquidity policy and the principle of the fair treatment of all
investors in the AIF. 98 We expect the Level 2 Regulation will require the AIFM to identify
both the normal and exceptional circumstances in which these measures may be used.
Preparations for firms becoming AIFMs
8.15 In DP12/1, we asked AIFMs whether there were any particular challenges to them as a
result of the liquidity requirements. 99 Some respondents noted that liquidity management
was more difficult for assets where traded volumes data are not widely available. Others
thought that closed-ended funds should be exempted from the liquidity management
requirements. As explained in paragraph 8.11, we intend to exempt AIFMs managing
unleveraged closed-ended funds from FUND 3.6.3R, but not from the other liquidity
requirements because closed-ended AIFs may still carry out occasional redemptions. All of
the liquidity requirements will apply to leveraged closed-ended AIFs as AIFMs will need to
ensure that there are sufficient funds to repay debts as they fall due.
8.16 A firm becoming an AIFM will need to determine whether each of its AIFs is open-ended or
closed-ended, review each AIF’s constitutional documents to ensure that the investment
strategy, liquidity and redemption policy are aligned, review any stress-testing and
monitoring programmes against the new requirements, and ensure that it has appropriate
disclosure and reporting processes in place.
8.17 UCITS management companies should already have liquidity risk management systems in
place since they are not allowed to invest in securities which compromise their ability to
redeem units in the fund. 100 However, AIFMD sets out more details on the liquidity
management systems and procedures required and introduces specific liquidity stress testing
and periodic disclosure requirements, which will be new for UCITS management companies
becoming AIFMs.
98 See also draft rule COBS 2.1.4R, which transposes Article 12(1) AIFMD.
99 Question 28 of DP12/1.
100 COLL 5.2.7AR (1)(b).
Financial Services Authority 65