ESMA has responded to some queries EIOPA raised with it on the definition of AIF and leverage in the AIFMD. EIOPA had asked:
- whether AIFs that use certain borrowing arrangements and derivative instruments under the Solvency II Delegated Regulation considered leveraged for AIFMD purposes. ESMA points out that the AIFMD has no formal definition of “leveraged” and reminds EIOPA that temporary borrowing arrangements fully covered by contractual capital commitments from the AIF investors will be considered to be unleveraged. It also notes the gross method set out in the AIFMD Delegated Regulation does not exclude currency hedging, but the commitment method does exclude financial derivative instruments used for currency heading provided they do not add any incremental exposure, leverage or other risks ; and
- whether AIFs managed by sub-threshold AIFMs nevertheless AIFs for the purposes of the AIFMD definition. ESMA confirms that they are.