AIFMD checklist - Grant Thornton Pakistan Advisory · negligence relating to professional liability...

AIFMD checklist

Things to consider

Header 2

© 2014 Grant Thornton Ireland. All rights reserved.

Contents

Page

Introduction 3

The financial statements 4

Annual report - report on the activities of the financial year 5

Disclosures to be provided outside (or inside) the annual report 8

Annual report – remuneration disclosures 11

Contact us 1

AIFMD checklist 3


Introduction

“The Alternative Investment Fund Managers Directive (“AIFMD”) includes transparency

requirements which are applicable to Alternative Investment Fund Managers (“AIFMs”) marketing

and or/managing Alternative Investment Funds (“AIFs”) in the European Union. These

transparency requirements relate to the annual report, investor disclosures and regulatory reporting.

This briefing sets out to provide AIFMs with a high level checklist to assist them in identifying the

key disclosure issues to be considered and where potentially these disclosures may be presented in

the AIFs annual report.”

AIFMD checklist 4


The financial statements

Disclosure Where included in financial statements

Response:

1 The financial statements must contain:

a a balance sheet or a statement of assets and liabilities; and

b an income and expenditure account for the financial year.

Statement of financial position and statement of comprehensive Income

2 The balance sheet should include a line item for cash and cash equivalents, including, but not limited to, cash-in-hand, demand deposits and qualifying short-term liquid investments. "Cash equivalents" are highly liquid investments held in the base currency of the AIF, that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.

Statement of financial position

3 Separate line items for: a realised and unrealised gains under income, and

c realised and unrealised losses under expenses.

Statement of comprehensive income

AIFMD checklist 5


Annual report - report on the activities of the financial year


Response:

1 A report on the activities of the financial year. Investment manager’s report

2 Investment activities during the period:

a an overview

b a fair and balanced review of the activities of the AIF

c to the extent necessary for an understanding of the AIF’s investment activities, the analysis shall include both financial and non-financial key performance indicators relevant to that AIF.

Investment manager’s report

3 AIF performance over the period: a an overview

b a fair and balanced review of the performance of the AIF

c to the extent necessary for an understanding of the AIF’s performance, the analysis shall include both financial and non-financial key performance indicators relevant to that AIF.


4 An overview of the AIF’s portfolio at period end. Investment manager’s report

5 A description of the principal risks and investment or economic uncertainties that the AIF might face.


6 Disclosure of any material changes in the pre-sale information required to be made available to investors. (see checklist below) The disclosure should include a description of any potential or anticipated impact on the AIF and/or investors in the AIF.

Director of the manager’s report

AIFMD checklist 6


Pre-sale information required to be made available to investors Changed during year Y/N

Change disclosed in financial statements Y/N

A description of the investment strategy and objectives of the AIF.

If the AIF is a feeder AIF, information on where the master AIF is established.

If the AIF is a fund of funds, information on where the underlying funds are established.

A description of the types of assets in which the AIF may invest.

The investment techniques that the AIF, or the AIFM on behalf of the AIF, may employ and all associated risks.

Any applicable investment restrictions.

The circumstances in which the AIF may use leverage.

The types and sources of leverage permitted and the associated risks.

Any restrictions on the use of leverage and any collateral and asset reuse arrangements.

The maximum level of leverage which the AIFM is entitled to employ on behalf of the AIF.

A description of the procedures by which the AIF may change its investment strategy or investment policy, or both.

A description of the main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, the applicable law and the existence or absence 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, the auditor and any other service providers and a description of their duties and the investors' rights.

A description of how the AIFM complies with the requirements for professional negligence relating to professional liability risk.

A description of any AIFM management function delegated by the AIFM.

A description of any safe-keeping function delegated by the depositary.

A description of the identity of each delegate appointed (Delegation).

A description of any conflicts of interest that may arise from such delegations.

A description of the AIF's valuation procedure and of the pricing methodology for valuing assets, including the methods used in valuing any hard-to-value assets, (Valuation).

A description of the AIF's liquidity risk management, including the redemption rights of investors in normal and exceptional circumstances, and the existing redemption arrangements with investors.

A description of all fees, charges and expenses, and the maximum amounts directly or indirectly borne by investors.

A description of how the AIFM ensures a fair treatment of investors.

Whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of that preferential treatment.

Whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of the type of investors who obtain such preferential treatment.

Whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of where relevant, their legal or economic links with the AIF or AIFM.

AIFMD checklist 7


Pre-sale information required to be made available to investors Changed during year Y/N

Change disclosed in financial statements Y/N

The procedure and conditions for the issue and sale of units or shares.

The latest net asset value of the AIF or the latest market price of the unit or share of the AIF, (Valuation).

The latest annual report, (Annual report of an AIF).

Where available, the historical performance of the AIF.

The identity of the prime brokerage firm.

A description of any material arrangements of the AIF with its prime brokerage firm and the way any conflicts of interest are managed.

The provision in the contract with the depositary on the possibility of transfer and reuse of AIF assets.

Information about any transfer of liability to the prime brokerage firm that may exist.

AIFMD checklist 8


Disclosures to be provided outside (or inside) the annual report

Some of the disclosures required by articles 108 and 109 of the AIFMD level 2 regulation are to be

disclosed as part of the AIF’s periodic/regular reporting to investors, as required by the AIF’s

instrument of incorporation or trust deed (as appropriate), or at the same time as the prospectus and

(as a minimum) at the same time as the annual report is made available.

Consideration should be given to presenting these disclosures on a website so that they are

accessible immediately to investors.

As an alternative the AIFM may present the below on its website. The below disclosures have been

prepared on the assumption that the AIFM presents this information within the annual report.


Response

1 The information below to be presented in a clear and understandable way.

2 The percentage of the AIF’s assets (i.e. net assets) that are subject to special arrangements arising from their illiquid nature.

Notes to financial statements (liquidity risk)

3 The current risk profile of the AIF, which risk profile should outline: a measures to assess the sensitivity of

the AIF’s portfolio to the most relevant risks to which the AIF is or could be exposed; and

b if risk limits set by the AIFM have been or are likely to be exceeded and where these risk limits have been exceeded a description of the circumstances and, the remedial measures taken.

Notes to financial statements (market risk and any implications on credit / liquidity/ counterparty / operation risks)

AIFMD checklist 9



Response

4 The risk management systems employed by the AIFM to manage the risks disclosed in its current risk profile, outlining: a the main features of the risk

management systems employed by the AIFM to manage the risks to which the AIF it manages is, or may be, exposed;

b in the case of a change, include the information relating to the change and its anticipated impact on the AIF and its investors;

c the main features of the risk management systems employed by the AIFM to manage the risks to which the AIF it manages is, or may be, exposed; and

d in the case of a change, include the information relating to the change and its anticipated impact on the AIF and its investors.

Notes to financial statements (market risk)

5 Where the AIF employs leverage, the total amount of leverage, calculated in accordance with both the gross and commitment methods, employed by the AIF.

Notes to financial statements Credit / liquidity risk)

6 (If the AIF is not an unleveraged closed-ended AIF), whenever the AIFM makes changes to the liquidity management systems and procedures which are material.

Notes to financial statements Credit / liquidity risk)

7 Where the AIFM activates gates, side pockets or similar special arrangements or where the AIFM decides to suspend redemptions. An overview of the changes to arrangements concerning liquidity, whether or not these are special arrangements, including: a where relevant, the terms under which

redemption is permitted and circumstances determining when management discretion applies;

b any voting or other restrictions exercisable, the length of any lock-up or any provision concerning ‘first in line’ or ‘pro-rating’ on gates and suspensions;

c where relevant, the terms under which redemption is permitted and circumstances determining when management discretion applies; or

d any voting or other restrictions exercisable, the length of any lock-up or any provision concerning ‘first in line’ or ‘pro-rating’ on gates and suspensions.

Notes to financial statements (Liquidity risk)

AIFMD checklist 10



Response

8 Information on changes to the maximum level of leverage calculated in accordance with both the gross and commitment methods and any right of re-use of collateral or any guarantee under the leveraging arrangements, including: a the original and revised maximum

level of leverage, whereby the level of leverage shall be calculated as the relevant exposure divided by the net asset value of the AIF

b the nature of the rights granted for the reuse of collateral

c the nature of guarantees granted

d details of changes in any service providers which relate to one of the items above.

Notes to financial statements (Market risk / liquidity risk)

AIFMD checklist 11


Annual report – remuneration disclosures

Once a firm becomes authorised under the AIFMD, it becomes subject to the AIFMD

remuneration rules and the Remuneration Guidelines and the relevant rules should start to apply as

of the date of authorisation.

However, as for the rules on variable remuneration AIFMs should apply them for the calculation of

payments relating to new awards of variable remuneration to their identified staff for

performance periods following that in which they become authorised. So the AIFMD regime

on variable remuneration should apply only to full performance periods and should first apply to the

first full performance period after the AIFM becomes authorised. For example:

an existing AIFM whose accounting period ends on 31 December and which obtained an

authorisation between 22 July 2013 and 31 December 2013: the AIFMD rules on variable

remuneration should apply to the calculation of payments relating to the 2014 accounting period;

and

an existing AIFM whose accounting period ends on 31 December obtains an authorisation

between 1 January 2014 and 22 July 2014: the AIFMD rules on variable remuneration should

apply to the calculation of payments relating to the 2015 accounting period.

However, for an existing AIFM whose accounting period ends on 31 December which submits an

application for authorisation by 22 July 2014 and obtains an authorisation after that date (including

when the authorisation is obtained after 31 December 2014), the AIFMD rules on variable

remuneration should apply to the calculation of payments relating to the 2015 accounting period.


Response:

1 The total amount of remuneration paid by the AIFM to its staff for the financial year: a split into fixed and variable remuneration, including,

where relevant, any carried interest paid by the AIF

b the number of beneficiaries of the above remuneration

c whether or not the above disclosures relate to any of the following:

i the total remuneration of the entire staff of the AIFM, indicating the number of beneficiaries;

ii the total remuneration of those staff of the AIFM who are fully or partly involved in the activities of the AIF, indicating the number of beneficiaries; or

iii the proportion of the total remuneration of the staff of the AIFM attributable to the AIF, indicating the number of beneficiaries.

Investment managers report or remuneration report

AIFMD checklist 12



Response:

2 Where the above information is disclosed at the level of the AIFM: a an allocation or breakdown of the amounts in relation

to each AIF, in so far as this information exists or is readily available; and

b a description of how the allocation or breakdown has been provided.


3 General information (to be provided by the AIFM): a relating to the financial and non-financial criteria of the

remuneration policies and practices for relevant categories of staff to enable investors to assess the incentives created; and

b at least the information necessary to provide an understanding of the risk profile of the AIF and the measures it adopts to avoid or manage conflicts of interest.


4 The aggregate amount of remuneration, broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF.


Contact us

Contacts

Niamh Meenan Partner, Global Head of Asset Management D + 353 (0)1 6805 614 E [email protected] John Glennon Partner D + 353 (0)1 6805 630 E [email protected]

David Lynch Director D + 353 (0)1 6805 923 E [email protected]

24-26 City Quay, Dublin 2

@GrantThorntonIE www.grantthornton.ie Offices in Dublin, Belfast, Cork, Galway, Kildare and Limerick

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AIFMD checklist - Grant Thornton Pakistan Advisory · negligence relating to professional liability...

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