Investment Fund Managers

BOX 7.2

Transparency requirements of the European Union’s Directive on Alternative Investment Fund Managers

The european union’s Directive 2011/61/eu on Alternative Investment Fund managers (AIFms) sets the standards for transparency and disclosure within three articles:

Article 22. Annual Report

• The AIFm must make available an annual report within six months of financial year end to investors and regulators. • The annual report must contain the balance sheet, income statement, financial year activities report, material changes, carried interest, and remuneration for management and staff. • Accounting standards must align with that of the eu member state / home state of the AIF.

Accounting information must be audited and reproduced in the annual report, including any qualifications.

Article 23. Investor Reporting

The AIFm must provide relevant information for investors in each of the AIFs it manages, including the following:

• AIF investment strategy and objectives • Domicile of AIF(s) • eligible assets of the AIF • Associated risks and risk management systems • Investment restrictions • conditions and/or restrictions on the use of leverage • Procedures for changing investment policy and strategy • Identity of AIFm, depositary, auditor, and other service providers, and their roles • Description of any delegated management function • valuation procedures • Liquidity risk management techniques • Fees, charges, expenses borne by investor • manner of fair treatment of investors, and whether there is any preferential treatment offered to any investor • Procedure and conditions for issue and sale of shares in AIF, and AIF net asset value • Historical performance • management of conflicts of interest

Article 24. Reporting Obligations to Competent Authorities

AIFms are required to provide detailed reporting to their regulatory authority, including information regarding the following:

• Instruments traded • exposures • categories of invested assets • Illiquid assets and special arrangements • Risk profiles and risk management systems • Leverage employed • A list of AIFs managed

Source: European Union Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMs).

investors have increasing expectations regarding disclosure on sustainability and eSg topics. concurrently, trade associations for private equity and venture capital general partners and limited partners have emphasized reporting requirements in their own recommendations for the industry. The Institutional Limited Partners Association recommends that investors have timely, clear, and comprehensive access to information such as on the management of investments, deviations from policy, the relationship between the manager and investees, or changes in the ownership of the general partner (ILPA 2019). In its handbook, Invest europe, a trade association for european private equity and venture capital, provides recommendations aligned with those of the Institutional Limited Partners Association on reporting structure, content, and frequency (see box 7.3).