On September 1, MFA submitted comments in response to ESMA’s consultation paper on guidelines to implement leverage limitations under the Alternative Investment Fund Managers Directive. In our letter, we encouraged ESMA to:
- incorporate the work done by the International Organization of Securities Commissions (“IOSCO”) by discussing the importance of assessing leverage broken down by asset class and by long and short exposures and identifying the limitations on using gross notional metrics in assessing leverage;
- recommend that national competent authorities (“NCAs”) assess systemic risk by analyzing investment fund use of leverage in the context of the broader markets in which funds operate, and not simply by comparing the characteristics of alternative investment funds to other similar funds;
- recommend that NCAs consider how regulations focused on markets and activities across all market participants would better address identified risks than imposing leverage limits under Article 25 of the AIFMD; and
- provide a framework for NCAs to identify whether the use of leverage creates risk, determine whether the particular use of leverage in a fund increases or decreases risk in a fund, whether that risk is systemic in nature or another type of risk.