| NAV | DERIVATIVE EXPOSURE | |
|---|---|---|
| CASH | 100,000 | |
| FUTURE | 100,000 | |
| NAV | 100,000 |
On Day 1, the fund has £100,000 cash and has taken out a future giving £100,000 exposure. The future has no unrealised gain or loss at this point. This is the scenario envisaged by CESR at Box 4 of the UCITS Guidelines.
DAY 2
On Day 2, the price of the underlying asset has increased, and the future now has an exposure of £105,000 and has an unrealised gain of £5,000.
| NAV | DERIVATIVE EXPOSURE | |
|---|---|---|
| CASH | 100,000 | |
| FUTURE | 5,000 | 105,000 |
| NAV | 105,000 |
AIFMD COMMITMENT EXPOSURE
On Day 1, the AIFMD Commitment Exposure is 100% (no incremental leverage). The derivative exposure is £100,000 but this is reduced by the cash / cash equivalents of £100,000. Therefore, the exposure is the £100,000 cash / £100,000 NAV – 100%
On Day 2, the AIFMD Commitment Exposure is still 100% (no incremental leverage). The derivative exposure is £105,000 but this is reduced by the cash / cash equivalents of £100,000, to give exposure of £5,000. £5,000 derivative exposure plus £100,000 cash exposure = £105,000 divided by the NAV of £105,000 is 100%
UCITS GLOBAL EXPOSURE
On Day 1, the UCITS Global Exposure is zero. The derivative exposure is £100,000 but this is reduced by the cash / risk free assets of £100,000, to give global exposure of 0%.
On Day 2, the UCITS Global Exposure is 4.762%. The derivative exposure is £105,000 but this is reduced by the cash / risk free assets of £100,000, to give exposure of £5,000. £5,000 divided by the NAV of £105,000 is 4.762%.
FUNDS-AXIS VIEW
The AIFMD Commitment Exposure calculation is preferable. As outlined above, the UCITS Global Exposure indicates that the fund is leveraged on Day 2. That said, in our view, the argument can be that that the UCITS Global Exposure on Day 2 is still 0%, as it is also the scenario envisaged by CESR at Box 4 of the UCITS Guidelines, but simply with an unrealised gain on the transaction.
| NAV | DERIVATIVE EXPOSURE | |
|---|---|---|
| CASH | 0 | 0 |
| EQUITIES | 10,000 | |
| DERIVATIVES | -1,000 | 9,000 |
| NAV | 9,000 |
The portfolio has £10,000 Equities and has taken an additional £10,000 leverage through derivatives.
However, the price of the underlying of the derivatives has fallen by 10% leaving the derivative exposure at £9,000 and with an unrealised loss of -£1,000
AIFMD COMMITMENT EXPOSURE
The fund has total exposure of £19,000 (10,000 equities and 9,000 derivatives). The NAV is £9,000.
Therefore, the AIFMD commitment exposure is 211.11% (111.11% incremental exposure).
UCITS GLOBAL EXPOSURE
The UCITS Global Exposure is 100%, being £9,000 derivative exposure / £9,000 NAV. This 100% is in compliance with the Regulations.
FUNDS-AXIS VIEW
The AIFMD Commitment Exposure calculation is preferable. The UCITS Global Exposure calculation as 100% is not an appropriate calculation of leverage.
The fund has total exposure of £19,000 and the NAV is £9,000, therefore £10,000 leverage. All of that leverage stems directly from the use of derivatives. Therefore, it makes sense that the UCITS Global Exposure should be 111.11% which is non-compliant.
