| NAV | DERIVATIVE EXPOSURE | |
|---|---|---|
| PORTFOLIO | 300m | |
| SWAP LEG 1 - SWAP OUT PORTFOLIO EXPOSURE | 0 | -300m |
| SWAP IN NEGATIVE PORTFOLIO EXPOSURE | 0 | -300m |
| CFD ON S&P | 0 | 300m |
| NAV | 300m |
The Portfolio has a basket of £300m equities. The fund has entered into a swap to:
– swap out the performance of the £300m basket
– swap in the negative performance of the £300m basket
It has entered another swap /CFD giving long exposure to £300m of the S&P On Day 1, the swaps/CFD do not have any unrealised P&L, hence the NAV of the fund remains at £300m.
AIFMD COMMITMENT EXPOSURE
The AIFMD Commitment Exposure would be 200% (100% incremental exposure), being 600m derivative exposure / 300m NAV.
The swap leg swapping out the £300m portfolio exposure can be netted with the £300m portfolio exposure and hence together they give no exposure;
The swap leg swapping in the negative portfolio exposure is -£300m exposure, which becomes an absolute exposure;
The S&P Swap gives another £300m exposure;
Total £600m exposure.
UCITS GLOBAL EXPOSURE
The UCITS Global Exposure would be 200% and hence not consistent with the 100% limit for UCITS. In this regard,
The swap leg swapping out the £300m portfolio exposure can be netted with the £300m portfolio exposure and hence gives no exposure;
The swap leg swapping in the negative portfolio exposure is -£300m exposure, which becomes an absolute exposure;
The S&P Swap gives another £300m exposure.
Therefore, there is £600m derivative exposure, which is 200% of the £300m NAV. This is not compliant with the UCITS provisions.
Note: The UCITS Guidelines at Box 3 do set out criteria for derivatives to be treated as not creating any global exposure. This covers swap leg 1 only, not swap leg 2.
FUNDS-AXIS VIEW
The AIFMD Commitment Exposure calculation is preferable.
The UCITS Global Exposure is intended to measure the incremental leverage through derivatives. In this case, there is clearly £600m total exposure compared to a NAV of £300m and the incremental leverage all comes through derivatives. However, it is not easy to reconcile this 100% calculation with the mechanical calculation steps set out at Box 2, Para 2 of UCITS Guidelines which seems to require a calculation of 200%.
