ESMA finds alt-funds have high concentration, repo main borrowing source for FI funds

The EU Alternative Investment Fund (AIF) industry is highly concentrated around a few large participants and asset classes, a recent report by the European Securities and Markets Authority (ESMA) shows. The Trends, Risks, Vulnerabilities (TRV) Report (TRV), also found that the vast majority of European AIFs are managed cross-border using passporting rights.

The AIFMD data show that 2% of the EU AIF funds are above €1 billion in size, holding around 46% of the industry’s total net asset value (NAV). On the other hand, around 95% of EU AIFs hold below €500 million (i.e. 40% of total NAV). Two-thirds of the total assets managed by EU AIFMs are divided among the following investment strategies: fixed income fund; equity fund; infrastructure fund; commodity fund; and other fund.

Fixed income AIFs hold the largest share in terms of NAV. The AIFMD data also show that repurchase agreements serve as AIFs’ primary borrowing source, while unsecured borrowing plays only a minor part. In addition, EU hedge funds mainly rely on short-term funding liquidity, with the majority of their borrowings, not committed beyond one day.

The ESMA TRV provides first-time EU-wide evidence on the AIF market, based on end-2016 data collected under the Alternative Investment Fund Directive (AIFMD). AIFs include hedge funds, real estate funds, funds-of-funds, and private equity funds.

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