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ESMA’s AIFMD Q&A has recently been updated to clarify the requirements on:

  • how frequently the leverage of an alternative investment fund (an AIF) should be calculated; and

  • the calculation of the leverage exposure of an AIF whose assets are invested in short-term interest rate futures.

Frequency of AIF Leverage Calculation

An alternative investment fund manager (an AIFM) should calculate the leverage of each AIF that it manages as often as is required. The purpose of this is to ensure that the AIF is capable of remaining in compliance with leverage limits at all times. Consequently, the Q&A states that leverage should be calculated at least as often as the net asset value (the NAV) of the AIF is calculated, or more frequently if required. Circumstances which may lead to increased frequency of leverage calculation, include the following:

  • material market movements;

  • changes to portfolio composition; and

  • any other factors the AIFM believes require calculation of leverage more frequently than NAV in order for the AIF to remain in compliance with leverage limits at all times.

AIF Leverage Calculation where there is Investment in Short-Term Interest Rate Futures

ESMA clarified that the calculation of leverage exposure of an AIF (assessed under the gross or commitment calculation methods) due to its investment in short-term interest rate futures should not be adjusted for the duration of the futures.

Paragraph (1)(a) of Annex II of the Commission Delegated Regulation (EU) No 231/2013 (the Level II Regulation) sets out the method to be used, when converting all interest rate futures into equivalent positions in the underlying asset, when calculating the exposure of the AIF, as the product of the number of contracts and the notional contract size. The Q&A states that the duration of the financial instrument should not be considered for the purpose of that calculation. This does not, however, prevent AIFMs managing AIFs that, in accordance with their core investment policy, primarily invest in interest rate derivatives, from applying duration netting rules under the commitment method, in accordance with Article 8(9) of the Level II Regulation.


These clarifications provide welcome certainty to the leverage calculation of AIFs. If you would like further information, please contact Conor Durkin or Rowena Fitzgerald.

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