The AIFMD sub-threshold test adds up the assets of every AIF a manager runs, and one open-ended or leveraged fund changes the limit for all of them.
The AIFMD thresholds are tested on the total value of the assets of every AIF a manager runs, at their valuation-rule values, including assets bought with borrowed money and derivatives converted to their underlying exposure; uncalled commitments do not count. The limit is 500 million only if every AIF is unleveraged and closed to redemptions for five years, and 100 million otherwise. An illustrative manager with two closed-ended private equity funds is at 445.0 million against 500 million, but launching a 20.0 million open-ended fund moves the test to 100 million and full authorisation, though its assets barely change.
Worked in full in The AIFMD II Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The sub-threshold regime of Article 3(2) of the AIFMD lets a small manager register rather than seek authorisation. AIFMD II leaves the two thresholds where they were, but its new rules on loan origination, liquidity management tools and delegation make the gap between a registered and an authorised AIFM wider, so knowing which side of the line the firm sits on, and how close, matters more than before. The method is set out in Articles 2 to 4 of Delegated Regulation (EU) No 231/2013.
| AIF | Investments | Cash | Subscription line drawn | NAV | Commitments |
|---|---|---|---|---|---|
| Fund I, closed-ended private equity | 180.0 | 5.0 | 0.0 | 185.0 | 200.0 |
| Fund II, closed-ended private equity | 250.0 | 10.0 | 25.0 | 235.0 | 350.0 |
| Total | 430.0 | 15.0 | 25.0 | 420.0 | 550.0 |
Neither fund gives investors redemption rights. Fund II's subscription line is drawn to bridge capital calls, is repaid from those calls, and is fully covered by uncalled commitments, so under Article 6(3) of the Delegated Regulation it is excluded from the leverage calculation. Neither fund borrows otherwise or uses derivatives.
AuM = Σ over all AIFs managed (value of every asset, including assets acquired with leverage, with derivatives at their equivalent position in the underlying)
Threshold = 500 million if every AIF is unleveraged and has no redemption rights exercisable for five years after initial investment; otherwise 100 million
In Excel, one row per AIF: =SUM(investments,cash,other_assets,derivative_equivalents), totalled, then =IF(AND(all_unleveraged,all_closed_5y),high_limit,low_limit) as the limit. Use the values the AIFs' own valuation rules produce, not cost and not commitments. An investment by one of the manager's AIFs in another it manages may be left out to avoid double counting.
Fund I's assets are 180.0 + 5.0 = 185.0 million. Fund II's are 250.0 + 10.0 = 260.0 million: the 25.0 million drawn on the line was spent on investments that are already in the 250.0, so it is counted once, as assets, and not deducted. The total is 445.0 million. Both funds are closed-ended and unleveraged, so the limit is 500 million and the manager has 55.0 million of headroom, a rise of 22.0 per cent in Fund II's investments.
On today's facts the manager is sub-threshold and can stay registered. The result rests on three conditions: the assets stay below 500 million, the line stays within Article 6(3), and every AIF stays closed-ended and unleveraged. The last condition is the fragile one, because it applies to the whole range, not to each fund.
| Change | AuM | Limit | Result |
|---|---|---|---|
| Today | 445.0 | 500.0 | Sub-threshold |
| Fund II investments marked up 10 per cent | 470.0 | 500.0 | Sub-threshold |
| Fund II investments marked up 25 per cent | 507.5 | 500.0 | Over |
| FX forwards of 60.0 at their underlying equivalent | 505.0 | 500.0 | Over |
| New open-ended fund of 20.0, unleveraged | 465.0 | 100.0 | Over by 365.0 |
| Subscription line not temporary or not covered | 445.0 | 100.0 | Over by 345.0 |
The open-ended fund adds 20.0 million of assets and costs the manager the higher threshold altogether: with one AIF offering redemptions, the test becomes 100 million for the whole book. The same happens if Fund II's line ceases to qualify for the Article 6(3) exclusion, for instance because it is kept drawn as long-term financing: Fund II becomes a leveraged AIF and 445.0 million is judged against 100. A markup or a hedging programme can also cross 500, but only with a large move. Whether a currency hedge's equivalent position can be offset against the asset it hedges is a point worth confirming with the national competent authority before relying on it.
Commitments are not assets. Counting the funds' 550.0 million of commitments would put the manager 50.0 million over a limit it does not breach. The US regulatory AUM test works the other way and does include uncalled capital, which is why a manager with both regimes in view should never reuse one number for the other.
Add up every AIF's assets at fair value, with leverage and derivative exposures, and test the total against 500 million only if every fund is closed and unleveraged: 445.0 million passes here, and a single 20.0 million open-ended fund fails it against 100. The free workbook for this book computes Fund IV's reverse stress level, and its blank version includes the fund scoping table for your own range.
No. The threshold counts the value of the AIFs' assets, not investors' commitments. The illustrative manager has 550.0 million of commitments but 445.0 million of assets, so it is under the 500 million limit; reading commitments would put it 50.0 million over. The US regulatory AUM test is different and does include uncalled capital.
Not if it is temporary and fully covered by investors' contractual commitments: Article 6(3) of the Delegated Regulation excludes such borrowing from the leverage calculation. If it fails those conditions the fund is leveraged, and the illustrative manager's 445.0 million is tested against 100 million instead of 500 million.
If the manager considers the breach temporary, not likely to last beyond 3 months, it does not need authorisation. Otherwise it notifies its competent authority and applies for authorisation within 30 calendar days. A 25 per cent markup of the illustrative Fund II's investments would take AuM to 507.5 million, over the 500 million limit.
This article is one calculation from The AIFMD II Handbook. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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