The buckets are shares of gross assets, investors' claims are on NAV, and the credit facility sits between the two.
The Annex IV portfolio liquidity profile is the share of the portfolio that could be sold within each of seven periods, from one day or less to more than 365 days, summing to 100 per cent. On a levered fund the trap is the base: the buckets are shares of gross assets, investors' claims are on net asset value. In an illustrative €310 million credit fund levered at 140 per cent, 20 per cent of the portfolio sells within 90 days, which is 28.0 per cent of NAV if the debt is ignored, 20.0 if it is repaid pro rata, and 14.0 per cent if the lender takes half of every disposal.
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 same assets, three answers, a factor of two between them. The investor liquidity profile, which the supervisor reads against the portfolio profile, is stated in NAV, so only a profile restated in NAV can be compared with it.
| Input | Value |
|---|---|
| Net asset value | 310 |
| Leverage (gross assets over NAV) | 140% |
| Gross assets | 434 |
| Credit facility drawn | 124 |
| Share of each disposal the facility takes (release price) | 50% |
| Dealing: quarterly, gate per quarter | 4% of NAV |
The liquidity buckets follow the shape of Fund IV in The AIFMD II Handbook, 11, 9, 24 and 56 per cent of gross assets, split here into the seven Annex IV periods as an illustrative assumption.
Portfolio profile, bucket i = assets saleable in period i without material discount ÷ gross assets
Cash to investors by horizon t = cumulative gross sales to t − debt repaid out of them
Liquidity in NAV terms = cash to investors ÷ NAV
With cumulative sales in B1, the release share in B2, the drawn facility in B3 and NAV in B4: =(B1-MIN(B1*B2,B3))/B4.
| Period | Bucket, % of portfolio | Cumulative sales | % NAV, debt ignored | % NAV, pro rata | % NAV, 50% release |
|---|---|---|---|---|---|
| 1 day or less | 4% | 17.4 | 5.6 | 4.0 | 2.8 |
| 2 to 7 days | 3% | 30.4 | 9.8 | 7.0 | 4.9 |
| 8 to 30 days | 4% | 47.7 | 15.4 | 11.0 | 7.7 |
| 31 to 90 days | 9% | 86.8 | 28.0 | 20.0 | 14.0 |
| 91 to 180 days | 24% | 191.0 | 61.6 | 44.0 | 30.8 |
| 181 to 365 days | 22% | 286.4 | 92.4 | 66.0 | 52.4 |
| More than 365 days | 34% | 434.0 | 140.0 | 100.0 | 100.0 |
Step 1, the portfolio profile. Classify each asset by the time to sell it without material discount and report the shares of the portfolio: 4, 3, 4, 9, 24, 22 and 34 per cent. They sum to 100 per cent of the €434 million, which is what the template expects.
Step 2, the euro amounts. Within 90 days the fund can sell 20 per cent of gross assets, €86.8 million.
Step 3, net of the debt. If none of that goes to the lender, it is 28.0 per cent of NAV, the reading that makes the buckets sum to 140 per cent. If the facility is repaid in proportion to the 28.6 per cent loan-to-value, €62.0 million reaches investors, 20.0 per cent: the gross-asset profile and the NAV profile coincide. If the facility takes 50 per cent of every disposal until it is repaid, only €43.4 million is left, 14.0 per cent of NAV. The lender is out after €248 million of sales, within the 181 to 365 day period; from then on every euro sold reaches investors, and the release reading meets the others only when the whole portfolio is sold.
With quarterly dealing, the whole NAV is contractually redeemable within the 31 to 90 day period unless the gate is applied. With the 4 per cent gate, investors can take 4 per cent in 90 days, 8 by 180 and 16 by 365.
| Horizon | Assets, 50% release | Assets, pro rata | Investors, gated | Investors, ungated |
|---|---|---|---|---|
| 90 days | 14.0 | 20.0 | 4 | 100 |
| 180 days | 30.8 | 44.0 | 8 | 100 |
| 365 days | 52.4 | 66.0 | 16 | 100 |
Gated, the fund covers a quarter's maximum outflow of €12.4 million 3.5 times over on the strictest reading. Ungated, there is no reading under which it matches its own dealing terms. That is the honest description of a semi-liquid credit fund, and the reason AIFMD II requires open-ended funds to select liquidity management tools: the gate is what makes the profile coherent, not an afterthought. How the gate is calibrated against the stressed figure is worked in the reverse stress level.
Whether the investor profile should reflect the gate follows the reporting guidance your supervisor applies, and AIFMD II mandates a revised reporting template, so field names may change. Show both columns internally whatever is filed.
Dividing the liquid assets by NAV and reporting the result as liquidity available to investors. On this fund it says 28.0 per cent within 90 days, exactly double the 14.0 per cent the facility leaves. The difference is a term in the credit agreement, the release price, not a property of the assets, and it is usually negotiated by someone who never sees the liquidity report. The opposite error, quoting the gross-asset percentages as if they were NAV, happens to be right only when debt is repaid pro rata.
The bucket basis, the facility's release price and the waterfall are computed in the free workbook for this case.
Seven periods: one day or less, 2 to 7 days, 8 to 30 days, 31 to 90 days, 91 to 180 days, 181 to 365 days and more than 365 days. The portfolio profile gives the share of the portfolio saleable in each and sums to 100 per cent. In the illustrative fund the shares are 4, 3, 4, 9, 24, 22 and 34 per cent of €434 million of gross assets.
The portfolio profile is a share of the portfolio, so of gross assets on a levered fund. Restated as a share of NAV without deducting debt, the buckets of a fund levered at 140 per cent sum to 140 per cent. To compare with investors, convert to euros and subtract what the lender takes: 20 per cent of gross assets is 14.0 to 28.0 per cent of NAV in the example.
If the facility takes a release price on each disposal, part of every sale repays debt before reaching redeeming investors. In the example, a lender taking 50 per cent of disposals turns €86.8 million of 90-day sales into €43.4 million for investors, 14.0 per cent of NAV, until the €124 million facility is repaid after €248 million of sales.
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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