Three tests and an add-on: for most mid-sized managers the fixed overheads test binds, and assets under management cost nothing extra until several billion.
An external AIFM must hold the higher of two amounts: 125,000 euro plus 0.02 per cent of the value of the AIF portfolios it manages above 250 million, capped at 10 million, and a quarter of last year's fixed overheads. On top comes 0.01 per cent of the portfolios if professional liability is covered with own funds rather than insurance. An illustrative manager with 2.4 billion of portfolios and 6.0 million of fixed overheads needs 1,500,000 plus 240,000, or 1,740,000, and the overheads test, not the assets, sets the figure.
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 formula sits in Article 9 of the directive and Articles 14 and 15 of the delegated regulation. It is short, but three choices change the answer: which portfolios count, which costs are fixed overheads, and how liability risk is covered. The worked case shows each.
| Input | Value |
|---|---|
| AIFs managed, portfolio management kept in-house | 2,100 million |
| AIFs managed, portfolio management delegated to a third party | 300 million |
| Portfolios managed under delegation from another AIFM | 200 million |
| Fixed overheads, previous financial year | 6,000,000 |
| Variable costs in the same year (bonuses, profit shares) | 1,800,000 |
| Initial capital, external AIFM | 125,000 |
| Additional amount, share of portfolios above 250 million | 0.02% |
| Professional liability own funds, share of portfolios | 0.01% |
Capital test = MIN(125,000 + 0.02% × MAX(0, V − 250m), 10m)
Overheads test = fixed overheads ÷ 4
Own funds = MAX(capital test, overheads test) + 0.01% × V
V is the value of the AIF portfolios managed. In Excel, with V in B1 and fixed overheads in B2: =MAX(MIN(125000+0.0002*MAX(0,B1-250000000),10000000),B2/4)+0.0001*B1.
Step 1: the portfolios that count. The directive counts the AIFs the manager manages, including those for which it has delegated functions, and excludes portfolios it manages under delegation for another manager. V is 2,100 + 300 = 2,400 million. The 200 million managed for someone else sits in that manager's figure, not this one.
Step 2: the capital test. The excess over 250 million is 2,150 million. At 0.02 per cent that adds 430,000, so the test is 125,000 + 430,000 = 555,000, well under the 10 million cap.
Step 3: the overheads test. A quarter of 6,000,000 is 1,500,000. It applies regardless of the capital test, so the binding figure is the higher one, 1,500,000.
Step 4: professional liability. Covering liability risk with own funds adds 0.01 per cent of 2,400 million, 240,000. The total is 1,740,000, 0.072 per cent of the portfolios.
The alternative is professional indemnity insurance with cover of at least 0.7 per cent per claim and 0.9 per cent a year in aggregate: 16,800,000 and 21,600,000 here. Insurance removes the 240,000 from the balance sheet, at a premium, and with exclusions the own funds route does not have.
| Portfolios, million | Additional amount | Capital test | Overheads test | Liability add-on | Own funds |
|---|---|---|---|---|---|
| 500 | 50,000 | 175,000 | 1,500,000 | 50,000 | 1,550,000 |
| 2,400 | 430,000 | 555,000 | 1,500,000 | 240,000 | 1,740,000 |
| 5,000 | 950,000 | 1,075,000 | 1,500,000 | 500,000 | 2,000,000 |
| 10,000 | 1,950,000 | 2,075,000 | 1,500,000 | 1,000,000 | 3,075,000 |
| 25,000 | 4,950,000 | 5,075,000 | 1,500,000 | 2,500,000 | 7,575,000 |
| 60,000 | 11,950,000 | 10,000,000 | 1,500,000 | 6,000,000 | 16,000,000 |
Below 7,125 million of portfolios the overheads test binds, and growth in assets only adds the 0.01 per cent liability layer. Above it, the capital test takes over. The cap bites at 49,625 million; beyond that only the liability add-on keeps growing. In practice overheads grow with the business, so the crossover moves out as the manager hires.
Two refinements change the figure. Up to half of the additional amount, 215,000 here, may be covered by a guarantee from a credit institution or insurer where the home state allows it; it does nothing while the overheads test binds. And an internally managed AIF starts from 300,000 rather than 125,000; even with the 0.02 per cent added, its capital test of 730,000 stays below the overheads test, so the total is the same 1,740,000.
Figures are illustrative and the treatment of particular costs varies by home regulator. Check the local rules and the regulator's own templates before relying on any computation.
The fund scoping table and the working documents for the fund-level tests are in the free companion files.
125,000 euro of initial capital for an external manager and 300,000 for an internally managed AIF. Above 250 million of portfolios the manager adds 0.02 per cent of the excess, with the two together capped at 10 million, but the own funds can never be below a quarter of the previous year's fixed overheads. On 2.4 billion the capital test is 555,000 and the overheads test 1,500,000.
Either additional own funds of at least 0.01 per cent of the value of the AIF portfolios managed, 240,000 on 2.4 billion, or professional indemnity insurance covering at least 0.7 per cent per claim and 0.9 per cent a year in aggregate, 16,800,000 and 21,600,000 on the same portfolios. The insurance must meet the delegated regulation's conditions on the insurer, the policy term and an annual review.
When 125,000 plus 0.02 per cent of the excess over 250 million reaches 10 million, which happens at portfolios of 49,625 million. Above that the capital test stops growing, but the professional liability add-on of 0.01 per cent does not stop: at 60 billion the requirement is 10 million plus 6,000,000.
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.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: regulation, compliance and banking → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.