RE: ESMA Consultation Paper on Guidelines on reporting obligations under Article 3 and Article 24 of the AIFMD

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1 European Securities and Markets Authority 103 Rue de Grenelle Paris France 1 July 2013 BlackRock 12 Throgmorton Avenue London, EC2N 2DL United Kingdom Dear Sirs, RE: ESMA Consultation Paper on Guidelines on reporting obligations under Article 3 and Article 24 of the AIFMD BlackRock welcomes the opportunity to submit comments on the European Securities and Markets Authority s (ESMA) proposed guidelines on reporting obligations under Article 3 and Article 24 of the AIFMD. BlackRock is one of the world s pre-eminent investment management firms and a premier provider of global investment management, risk management and advisory services to institutional and retail clients around the world. As at 31 March 2013, BlackRock s AUM was 3.07 trillion (US$3.936 trillion). BlackRock offers products that span the risk spectrum to meet clients needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, ishares (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. In Europe specifically, BlackRock has a pan-european client base serviced from 22 offices across the continent. Public sector and multi-employer pension plans, insurance companies, third-party distributors and mutual funds, endowments, foundations, charities, corporations, official institutions, banks and individuals invest with BlackRock. Financial regulatory reform fundamentally impacts asset managers and end-investors. As a fiduciary for our clients, BlackRock supports the creation of a regulatory regime that increases transparency, protects investors, and facilitates responsible growth of capital markets, while preserving consumer choice and assessing benefits versus implementation costs. We support the current initiative by ESMA to the extent it provides positive outcomes for Europe s end-investors by strengthening systemic risk reporting. BlackRock welcomes the detailed work conducted by ESMA in providing detailed Questions and Answers which answer many of the issues which industry participants had identified following publication of the final Level 2 template. We have a number of general comments on the ESMA proposals, as well as specific comments on the questions asked. General comments Reporting dates We note that the draft Guidelines require all existing Alternative Investment Fund Managers (AIFMs) as of 23 July 2013 to report the information required under Article 24 AIFMD by 31 January 2014, or 15 February 2014 for fund of funds. The first round of reporting is expected to cover the period 23 July December Generally, reporting systems are designed to measure performance and provide client reporting on either the last calendar day, or the last business day of the period. Mid-month reporting dates would lead to significant operational process enhancements and systems build for just one reporting period. 1

2 We would therefore request that ESMA reconsiders the requirement for reporting to begin on 23 July Recommendation We would recommend that 1 October 2013, the start of the first quarter after authorisation as an AIFM, is considered as the start date for calculating the first set of reports. We would also encourage ESMA to make this the default approach for reporting across all reporting periods for example: Under a quarterly reporting scenario, if a fund is authorised / registered in Q1, then the first reporting will be for the end of the first full quarterly period following the authorisation / registration, i.e. at the end of Q2 in this instance. Technical coordination, timing and industry liaison We also note that ESMA quite properly has to follow a number of procedures before the final Guidelines are issued. National competent authorities (NCAs) then have to finalise the build on of their own reporting engines. This then leaves the possibility that the set up and testing of the necessary technical infrastructure by all NCAs and the asset managers may not be completed or definitive by 31 January In this scenario, it would be useful for firms to have the fall back scenario of reporting in other formats. We would encourage ESMA to consider this and provide us with standard reporting formats acceptable across NCAs, other than just XML, as a back-up option. Recommendation We would strongly recommend the extension of any user group between ESMA and NCAs to include industry representatives, at the very least to allow proper end-to-end testing of the reporting system prior to it going live. This user group would benefit from setting uniform understanding and processes around transmission, ACK/NAK processes and validation besides testing. Finally, this user group would also help drive out and resolve the inconsistencies in the XML schema, the Consultation Paper Guidance and the reporting templates with regards to the reporting requirements. Please refer to section II: Additional areas of comment #8 for some examples of such discrepancies. Technical inconsistencies in the Consultation Paper At the outset, we appreciate the significant efforts ESMA has put in to interpret the Directive and to provide us with technical details around the XML schema and the IT Guidance. On an initiative of this scale, inconsistencies across various guidances are inevitable. We have identified a few and have shared these in this response. Recommendation We would like to work with ESMA and the NCAs to help drive out and to resolve these inconsistencies. As we continue to review the proposals and the technical guidance in more detail and prepare our systems, we would welcome a forum with the ability to share further comments with ESMA and NCAs. AUM calculation We note from the Consultation Paper that assets under management (AUM) is now used as the basis of a number of key calculations. Level 2 regulation and explanatory notes use different wording in describing the calculation of the AUM in particular reference to liabilities. The explanatory notes state as follows: The AIFM has to calculate total AUM by determining the value of all assets it manages, without deducting liabilities, and valuing financial derivative instruments (FDIs) at the value of an equivalent position in the underlying assets. This raises the question of what should be included in the definition of liability. It would help if ESMA were to provide more guidance around what is ideally included in the liability category. As it stands, we could possibly interpret the guidance in one of the two ways stated below: 1. Using one side of the Trial Balance, the long only assets side and then deducting market value and adding back notional of the Derivative Positions. This, however, would exclude short positions, which we do not believe is the intention. 2. Take the Net Assets, back out the market value of the derivatives and add back in Notional value of the derivatives (as per Article 10) and adjust for the shorts. This would have to be done by the administrators and we do not believe that they are equipped to perform this calculation. This 2

3 would also place significant burden and pressure on our ability to provide the data in a timely manner as we would have an external dependency on the administrators providing the data. Recommendation Therefore, we would like to suggest a third way to calculate total AUM, which is: The market value of securities minus the market value of derivatives plus the notional value of derivatives (as per Article 10) minus the market value of short positions plus absolute value of short positions plus settled cash. Third country AIFs reporting As per the Consultation Paper, non-eu AIFMs are subject to reporting obligations under Article 24 of AIFMD only for those AIFs that are marketed in Member States (ESMA Consultation Paper, p.24, Para. 27). However, the Consultation Paper also states that AIFMs will report only upon authorisation (ESMA Consultation Paper, p.21, Para. 10). This raises a couple of questions: Third country AIFMs that have no authorisation per se will have to fall into the Registered category. Even though there is no authorisation as such for third country AIFMs, are there any reporting expectations at the AIFM level? Is the AIFM level form expected to be consistent with the funds that are marketed in the Member State or would it be expected to report on all funds managed by the AIFM regardless of whether the fund is marketed in a Member State? For an example of such a scenario please refer to Annex I. Recommendation We recommend that ESMA explores the option of allowing the filing of a common set of reporting data across all jurisdictions with an additional field / XML tag to indicate the list of registered jurisdictions. This would greatly simplify reporting process for asset managers and also provide a common consistent set of reports to all NCAs who then have the option of reviewing only those funds that are marketed in their jurisdiction. Additionally, we understand that for funds managed by EU-domiciled AIFM, reporting would be to the AIFM s home regulator regardless of where the funds themselves are domiciled (e.g. EU or non-eu). Feedback to industry AIFMs are likely to be reporting to NCAs and onwards to ESMA and the European Systemic Risk Board many millions of lines of data. It would be extremely helpful if ESMA, ESRB, as well as NCAs were to publish a feedback statement on key trends and any emerging areas of regulatory concern after each quarterly reporting cycle. By way of example, we would note the feedback statement the UK Financial Conduct Authority provides after completion of its hedge fund survey. We appreciate the opportunity to address and comment on the issues raised by the Consultation, we are happy to work with the ESMA on any specific issues, which may assist in facilitating effective implementation of AIFMD. Yours faithfully, Leon Schwab Martin Parkes Director, Business Operations Director, Government Affairs & Public Policy leon.schwab@blackrock.com martin.parkes@blackrock.com 6D route de Trèves 12 Throgmorton Avenue Senningerberg, L-2633 London, EC2N 2DL Luxembourg United Kingdom 3

4 I. Specific questions asked by ESMA Q1: Do you agree with the proposed approach for the reporting periods? If not, please state the reasons for your answer. Please refer to our comments on this topic earlier in the document. There are some specific additional clarifications, which we seek as set out below: Notwithstanding our recommendation made earlier regarding starting reporting from 1 October, we would like to understand how many reports we would need to file if the first reporting period remains 23 July December Do we need to file two reports, that are: 1. One covering the period from 23 July 30 September 2013, and 2. Another for 1 October 31 December 2013? Assuming that the reporting period stays as 23 July 31 December, for questions that require data for the entire reporting period i.e. performance, turnover calculations, subscriptions and redemptions, as opposed to the reporting commencement date of 23 July, we consider that it would be acceptable to provide back to the beginning of July. Paragraph 12, last sentence: Should the sentence, which currently reads Finally, if it obtains authorisation in Q4, the AIFM should report in Q4 for the period Q1+Q2+Q3+Q4, instead read Finally, if it obtains authorisation in Q4, the AIFM should report at the end of Q4 for the period Q1+Q2+Q3+Q4? End of reporting period (ESMA, Consultation Paper, p.26, Para. 39) - We interpret that in case the last calendar day of the reporting period is a weekend or a bank holiday, we will report for the last business day of the fund. The business day would be driven by the jurisdiction of the domicile of the fund as opposed to the jurisdiction of the NCA where we are reporting. De-Authorised / De-Registered AIFs / AIFMs - We would welcome more clarity from ESMA regarding the reporting expectations for AIFs that close down during the reporting period. - We recommend that ESMA pays particular attention to the as of reporting date in such instances. For example, would this still be the last business day of the quarter or the date of fund closure or date of fund de-authorisation, etc.? Q2: Do you agree that ESMA should provide clarification on how AIFMs should manage changes in reporting frequency? Do you agree with the scenario identified by ESMA and the guidelines provided? If not, please state the reasons for your answer. Please see our merged response for the second and third questions under Q3. Q3: Do you think that ESMA should provide further clarification? If yes, please provide examples. We recommend that firms have the option to retain more frequent reporting, for example quarterly, instead of half yearly. As per ESMA Consultation Paper, when an AIF is authorised in Q1, we are expected to report at the end of Q2 for period Q1 and Q2. However, for AIFs which are authorised in Q4, we will be expected to report at the end of Q4 for Q1, Q2, Q3 and Q4. It appears that if we get authorised in Q4, we have less time to report than if we were to get authorised in any other quarter. We believe that this inconsistency can be addressed by our proposal to have reporting obligations start only after the first full reporting period post-authorisation. The same could be extended to change in reporting period. Additionally, we would like ESMA to clarify the reporting expectations in a scenario wherein an AIF changes its management company during the transitional period. For example: 4

5 AIF A is under Management Company ABC during Q1 and Q2 operating under a transitional regime. AIF A moves to Management Company XYZ during Q3 and XYZ is now authorised as an AIFM. When we report at the end of Q4, do we report Q1, Q2, Q3 and Q4 as if under AIFM XYZ? This would not be accurate as for Q1 and Q2, the AIFM was ABC. We believe that it would be clearer and more straightforward based on our proposal to have reporting obligations start only after the first full reporting period post-authorisation. Q4: Do you agree with the proposed approach for the reporting obligations for feeder AIFs and umbrella AIFs? If not, please state the reasons for your answer. We agree that umbrella AIFs should report at the sub-fund level. We would request ESMA to reconsider the approach to requiring reporting of feeders and masters separately. We believe that firms should have the option of aggregating the reporting of masters and feeders. The Directive states that if you have an EU master with an EU feeder, the feeder should report separately. We believe that this is an additional burden especially where there is a one-to-one relationship between the master and the feeder. Reporting the feeders and the masters separately could lead to double counting, insofar as an aggregate of the feeder AUMs would not equal the total AIFM assets. Reporting at the aggregate level would alleviate this concern. Notwithstanding our recommendation regarding aggregating masters and feeders, if there is no change in guidance from ESMA, we believe the reporting expectations around master and feeder will be as stated in the table below. We would welcome feedback from ESMA on this. Structure Scope Master Feeder Master Feeder EU EU / Non- EU EU / Non- EU Non-EU ALL Out of scope In scope ALL In scope In scope ALL ALL In scope Out of scope Out of scope In scope Reporting No reporting required Master & feeder report under Art. 24 (1 & 2) Master report under Art. 24 (1 & 2) Master & feeder report under Art. 24 (1 & 2) Notes UCITS master <> Non UCITS feeder. 2 separate AIF forms Is Master in scope ONLY for reporting? Q5: Do you agree with the approach proposed by ESMA? If not, please state the reasons for your answer? Do you think ESMA should provide further clarification? If yes, please give examples. We largely agree with the approach proposed by ESMA, though there are some specific additional clarifications, which we seek as set out below. Reporting obligations (as per Consultation Paper, p.24, Para. 28; p.26, Para. 41) recommend providing a national identification code together with BIC (bank identification code), Legal Entity Identifier (LEI) and IEI to identify the AIFM. Do we expect the NCAs to provide the national identification code? For EU AIFMs, we assume that this would come from the home regulator. However for non-eu AIFM, should we expect to get one from each NCA where we file the report or from the home regulator where the fund is domiciled, e.g. from SEC for US domiciled funds? What would happen if these are not available? Would CFTC Interim Compliant Identifier (CICI) LEIs be acceptable for reporting? For sub-funds we would expect NCAs to provide identifiers at the sub-fund level. 5

6 Q6: Do you agree with the proposed approach for the principal markets and instruments in which AIFMs are trading on behalf of the AIFs they manage? If not, what would you propose as an alternative approach to the identification of principal markets and instruments? We largely agree with the approach adopted by ESMA, though there are some specific additional clarifications, which we seek as set out below: Page 9, Para. 13 & 14 ESMA recommends that we supplement the principal market and instrument information with value as calculated under Article 2. There are a couple of issues with this: - There is no placeholder in the physical form template to provide the value (though there is place in the XML file) - Article 2 refers to calculation of the AUM across all of the AIFs managed by the AIFM. Is the intent to base AUM calculation on Article 2, or is it just referring to the derivative conversion based on Article 10 which is inherent in Article 2? Page 24, Para. 30 For assets such as bonds that are listed on exchanges but traded bilaterally, we would classify them under the XXX category / market. We recommend that ESMA explicitly clarify this. Page 10, Para. 19; page 32, Para principal exposures of the AIF: - We would like to seek clarification regarding whether the percentages are based upon NAV or AUM as per Article 2. The XML schema requests percentages based on these two calculations. However, there is no such specific mention in the Consultation Paper. We would request ESMA clarify and clear out the inconsistencies. Page 32, Para We would request ESMA to provide some guidance on how to determine the domicile of the investments made for derivatives, especially those with multiple underlying assets, e.g. equity linked note with a basket of stocks as its underlying. Page 36, Para. 89 Foreign Exchange (FX): While the Consultation Paper explicitly states that we should exclude FX done for currency hedging of different share classes, we would like ESMA to clarify whether we should include FX, which relate to hedging a portfolio investment against the base currency of the fund. Page 10, Para. 20; page 33-34, Para most important portfolio concentrations: - Are the percentage based upon NAV or AUM per Article 2? The XML schema requests percentages based on these two calculations. However, there is no such specific mention in the example provided in the Consultation Paper. The XML templates however seem to request the percentage and value based on two calculations presumably AUM per Article 2 and NAV. However, there is no such mention in the Consultation Paper. We would request ESMA to clarify and clear out the inconsistencies. Q7: Do you agree that AIFMs should report information on high frequency trading? If not, please state the reasons for your answer. If yes, do you agree that this information should be expressed as a percentage of the NAV of the AIF? If not, please state the reasons for your answer and identify more meaningful information that could be reported. Page 9, Para. 16 ESMA imposes additional requirements if we engage in high frequency trading (HFT). There seems to be differing interpretations of what is considered as high frequency trading across the various regulations. We recognise the focus on high frequency trading by regulators and support the principles of greater controls and legislation to avoid abuse by market operators. However, the use of automated execution strategies by asset managers to ensure efficient execution of long-term strategies is wellestablished as part of their duties to clients to ensure best execution. We are concerned that there are differing interpretations of what is considered as high frequency trading across the various regulations. We recommend focusing on proprietary high frequency trading and the particular strategy used, rather than on the current wide definition and the percentage use, which we believe is a blunt way of assessing the impact of the use of HFT. 6

7 Page 30, Paragraph 62 of the Consultation Paper defines high frequency trading as the "strategies where for each transaction the signal to trade and the decision to trade is executed by a computer programme and not a human being. We believe that this definition will capture not only HFT but potentially also many other types of algorithmic trading. It is much broader than the MiFID II definition proposal. We would recommend that ESMA takes into account the most recent developments in MiFID and ensures its definition is consistent with these. We believe from a policy perspective it will be counter-productive if proprietary trading strategies are confused with agency execution strategies, especially if this then exposes clients to less efficient execution strategies. As well as adopting a definition aligned with the final MiFID definition 1, we would recommend that ESMA includes guidelines on identifying whether reporting should be treated as high frequency trading based on both the type of strategy and whether it is executed on a proprietary as opposed to agency basis. 1. Types of strategies There are various types of computer-based trading strategies on the market characterised by: Limited or no human intervention for order initiation, generation, routing and execution Use of high-speed trading platform: co-located low latency infrastructure and fast direct market data feeds Full leverage of exchange order types and different execution venues High order to trade ratios. These characteristics are found in both proprietary and agency algorithms so by themselves, they are not a sufficient definition. 2. Characteristics of proprietary trading Proprietary traded portfolios (as opposed to agency algorithmic trading for clients) are characterised by: High portfolio turnover Very short holding periods (e.g. measured in milliseconds to minutes) Little to no (flat) positions at the end of the trading day as opposed to agency algorithms which seek to acquire or liquidate a position and which may not be intervening on the market on a continuous basis for a specific portfolio (e.g. quarter end rebalancing for index funds) Typically seeks low cost (or high rebate) execution channels due to high turnover and lower returns. 3. Having established whether a strategy has a proprietary basis, then we would recommend that ESMA also considers the type of high frequency trading strategy used as diverse strategies employed have a different market impact. Primarily, the strategies can be generally classified as: Market making Statistical / index arbitrage Structural / latency arbitrage Short-term directional. Some, we believe, are good for the market (market making + statistical /index arbitrage), some may be of more dubious benefit/cost (structural/latency arbitrage), and some (short-term directional) seem reasonable as long as everyone is on a level playing field (no access to special info, order types, etc.). 1 The 21 June 2013 Council position on MiFID describes HFT as follows: 30a)[new] High frequency algorithmic trading technique means any algorithmic trading technique characterised by: (a) infrastructure intended to minimise network and other types of latencies, including at least one of the following facilities for algorithmic order entry: co- location, proximity hosting or high speed direct electronic access; (b) system determination of order initiation, generating, routing or execution without human intervention for individual trades or orders; and (c) high message intraday rates which constitute orders, quotes or cancellations. 7

8 Q8: Do you think that the list of investment strategies should be widened? If yes, please provide ESMA with suggestions of additional investment strategies. We would like ESMA to clarify the codes to be used for this question as the codes in Annex VII table 3 - AIF strategies do not match with those provided in the XSD schema. See table below with values for Real Estate Funds. AIF type code REST REST REST REST REST Codes in Annex VII table 3 - AIF strategies AIF type label Real estate strategies Real estate strategies Real estate strategies Real estate strategies Real estate strategies AIF strategy code AIF strategy label Codes in XSD RESL_REST Residential real estate REST_RESL COML_REST Commercial real estate REST_COML INDL_REST Industrial real estate REST_INDL MULT_REST OTHR_REST Multi-strategy real estate fund Other real estate strategy REST_MULT REST_OTHR Q9: Do you agree that AIFMs should also calculate the geographical focus based on the total value of the assets of the AIF? We would like to ask ESMA to clarify the treatment of FX exposures and cash for the purpose of the calculation of geographical focus. Q10: Do you agree that information on the turnover should also be expressed in number of transactions? If not, please state the reasons for your answer. We do not see a benefit of adding number of transactions as this can be misleading. It does not give an indication of the reason for turnover (capital stock activity or investment purposes). We would also encourage ESMA to clarify which transactions should be included in the turnover calculation. For example: Would it just be market facing purchases and sales? Should subscriptions and redemptions be counted as eligible transactions? Q11: Do you agree with the proposed list of types of transactions and the respective definitions? If not, please state the reason for your answer. Can you think of any other type of transactions that ESMA should add to the list? We agree. Q12: Do you agree with the introduction of additional measures of market risks? If not, please state the reason for your answer. If yes, do you believe that ESMA should further clarify how these measures should be computed? In reading Para. 99, 100 and 101, and the IT Guidance on pages 83 and 84, we could conclude that the Risk Value measure could be allotted a value of 0 for each of the risk measures with an explanation of the reasons for this value. We assume that this should also apply for the VaR values. If VaR is expected as a mandatory value, we do not agree with the introduction of VaR as an obligatory additional measure of market risks because the VaR calculation is not meaningful and computationally difficult for certain types of AIF (such as real estate funds, private equity funds, special funds with a low risk profile). Additionally, the introduction of additional measures of market risks will give additional costs to investors. VaR calculations should only be necessary for those types of AIFs where it is relevant and where gross and commitment leverage do not adequately capture the market risk of the portfolio. 8

9 Further, we have several comments regarding the use of VaR as provided by the draft Guidelines. Firstly, the calculation method of VaR applicable to UCITS under the CESR Guidelines on Risk Measurement & Calculation of Global Exposure and Counterparty Risks for UCITS is not restricted to the historical or Monte Carlo approach, as proposed under the draft Guidelines. There is no reason why the VaR of an AIF and the VaR of a UCITS fund should be calculated with different periods and methods. We would therefore be grateful if the calculation methods could be chosen by the AIFM. Secondly, more flexible parameterisation should be allowed for the VaR calculation since the required in the draft Guidelines observation period of 500 days is not meaningful or consistent in all cases. On a practical basis, many systems may be coded with different inputs for VaR. To change the methodology, or add an additional methodology due to the discrepancy with UCITS, will be costly and time consuming. It may not be available in time for the first reporting period. 9

10 II. Additional areas of comment 1. AIFM and AIF EEA Flag vs. EU Flag Questions 1 & 2 of the Identification of the AIF form template expects the manager to report if the AIF and AIFM are EU entities whereas the IT Guidance expects to report if AIF and AIFM are EEA entities. We assume that the Guidance from the ESMA Consultation Paper would take precedence over the form, hence we would flag if an AIFM / AIF is an EEA entity. 2. Jurisdiction of the three main funding sources Question 7 - Jurisdiction of the three main funding sources of the Identification of the AIF form template: The IT Guidance indicates that at least one funding source is mandatory. We interpret the funding source as a source of borrowing by the fund. It may be the case that there could be funds, which do not have any borrowing this would inhibit our ability to send a valid file. It should also be noted that though the IT Guidance in the Consultation Paper has the jurisdiction of the first funding source as mandatory, the XSD schema has it as optional. We would recommend that ESMA makes the reporting of this piece of data optional. 3. Value of collateral and credit support posted by the AIF Question 15 of Section Risk Profile of the AIF form template. We would like to understand what is covered and defined under counterparty. For example, do we include prime brokers as well, especially given that there are many other questions in the form that ask for prime broker data specifically? 4. Re-hypothecation Question 16 of Section Risk Profile of the AIF form template: We would like to understand whether the real intent behind this question is to understand the percentage that has been re-hypothecated or whether this is intending to determine what percentage can be re-hypothecated. The amount that can be subject to re-hypothecation will be higher than the amount that has been hypothecated. Therefore, this is a more conservative view. If it is the actual percentage that has been rehypothecated, it potentially could be very complicated as we would have to source the data from multiple counterparties across the globe. We would also like to understand if cash collateral should be excluded while calculating the value of the collateral re-hypothecated. Excluding cash collateral would bring the calculation in line with the rehypothecation value calculations in Form PF in the United States. 5. Currency of exposure Question 10 of Section Instruments Traded & Individual Exposures of the AIF form template Before Currency Hedging : We interpret this as a request to include the hedging that is done within the funds and exclude any hedging in the hedged share classes. We would like ESMA to provide clarity around the preferred treatment of FX across this question and others that include FX. In particular, would we need to split the FX positions into the individual legs? 6. Operational & Other Risk aspects Page 42, Para. 119 The Consultation Paper states, For AIFs with multiple share classes, the gross net returns should be provided at the level of the AIF and not for each share class. Should this read gross and net returns instead of gross net returns? For funds with multiple share classes, we believe that the net returns at the share class level is what drives end-investor experience and hence is more representative of the return. We would suggest, therefore, reporting for one share class, which the AIFM considers representative of the Fund, or alternatively, reporting for the class which has the highest fees charged taking into account any distributions. 10

11 7. Beneficial ownership breakdown Question 24 of Risk Profile of the AIF requests to provide ownership breakdown by look-through to the beneficial owners where known or possible; whereas Para. 113 of the ESMA Consultation Paper does not specifically mention that the breakdown should be provided on a where known or possible basis. We are assuming that the statement in the form about where known or possible basis would take precedence over Para Examples of key inconsistencies between the draft Guidelines, the Level 2 template and the XML reporting fields In reviewing the Consultation Paper, we have noted a number of inconsistencies between the final Level 2 template, the template in the ESMA Consultation, the draft Guidelines and the XML fields. The comments below are not intended to be comprehensive and, as mentioned above, we welcome the ability to request clarifications on these issues. Inconsistency between data dictionary (p. 60, Annex VI), the form templates (Annex IV, p. 43) and the XML / XSD templates. - There are additional data points expected within the reporting framework. However, these are not reflected in the form templates. Is that intentional? For example, LEI codes are expected and there are placeholders in the XSD and data dictionary, however there is no such field in the form template. - There are additional data points expected within the reporting framework. However, there is no corresponding XML tag within the XSD to provide the data. For example, p.10, Para. 17 on Main Instruments in which the AIF is trading expects us to indicate whether the short position is covered or not. However, there is no such tag available within the XSD. - There are inconsistencies between the values expected as per the Consultation Paper Guidance and the Annex VII and the XSD schema: For VaR calculation method, the Consultation Paper Guidance allows only two methodologies Monte Carlo and historical, but the XSD schema allows for four Monte Carlo, historical, parametric and other. Investment strategy codes provided in Annex VII table 3 AIF strategies do not match with those provided in the XSD schema. Parts of the physical form template in the Annex IV : Reporting template of the Commission Delegated Regulation of EC are omitted in Annex IV of the ESMA Consultation Paper. - Question 4 of section Borrowing and Exposure Risk Five largest sources of borrowed cash or securities (short positions) is not present in the Annex IV of the ESMA Consultation Paper. Numbering of the questions in the Annex IV of the ESMA CP is inconsistent with the numbering in the Annex IV: Reporting template of the Commission Delegated Regulation of EC. 11

12 Annex I Third Country Funds Consolidated and fund level reporting Non-EU Fund 1 AIFM Fund 1 UK Non-EU Fund 2 Fund 2 UK Netherlands Non-EU Fund 3 Non-EU Fund 4 Fund 3 Fund 4 Netherlands Reverse enquiry - no Reporting Jurisdiction Option 1 Likely outcome is to assume that we report different funds under the same AIFM depending on reporting jurisdiction means different consolidation by jurisdiction. Option 2 Unlikely scenario but operationally could be easier to report all 3 funds in each of the two jurisdictions Note: Funds managed by EU domiciled AIFMS would only be reported to the AIFM s home regulators. We understand this to be the case regardless of whether the fund is domiciled in EU or not. Recommendations We recommend that ESMA explores the option of allowing the filing of a common set of reporting data across all jurisdictions with an additional field / XML tag to indicate the list of registered jurisdictions. This would greatly simplify reporting process for asset managers and also provide a common consistent set of reports to all NCAs who then have the option of reviewing only those funds that are marketed in their jurisdiction. Additionally, we understand that for funds managed by EU-domiciled AIFM, reporting would be to the AIFM s home regulator regardless of where the funds themselves are domiciled (e.g. EU or non-eu). 12