Answer ... Alternative investment fund managers (AIFMs) must compile an annual report for each EU AIF under management and for each AIF whose shares or units it is marketing in the European Union. At minimum, the annual report must contain data on:
- the AIF’s assets and liabilities;
- its revenues and expenses;
- its business activities in the financial year;
- material changes to its rules and information distributed to investors; and
- the remuneration policy.
The AIFM must further compile a semi-annual report that includes at least data on the AIF’s assets and liabilities, and revenues and expenses. The accounting information given in the annual report must be prepared in accordance with accounting standards. The accounting information given in the annual report must be audited by an authorised auditor.
The AIFM must facilitate the inspection of the AIF’s rules and prospectus, if applicable, and the latest audited annual report at all places where the shares of the AIF are marketed. Upon the request of investors, relevant documentation must be delivered to investors, including the latest audited annual report.
The AIF must inform investors periodically on the following;
- assets subject to special measures resulting from their illiquidity;
- new measures regarding liquidity management;
- current risk profile and risk management systems; and
if it is a leveraged AIF:
- changes to the leverage limits and the right to reuse collateral and guarantees; and
- the maximum amount of leverage used.
At the request of investors, the AIFM must also deliver information without delay on:
- the limits applicable to risk management;
- the procedure followed for such purposes; and
- changes to the risk and yields of financial instruments in which the AIF’s assets are invested.
Answer ... The AIFM must regularly inform the Croatian Financial Services Supervisory Agency (HANFA) of the main markets on which it trades in the shares of AIFs and instruments traded for the account of the AIFs under management. For every EU AIF under management and whose shares it markets in European Union, the AIFM must submit a report to HANFA comprising data on:
- the assets subject to special measures resulting from their illiquidity;
- new measures regarding liquidity management;
- current risk profile and risk management systems;
- the main categories of assets in which the AIFs’ assets are invested; and
- stress testing results.
The AIFM must also submit to HANFA:
- annual reports for the AIFs under management and whose shares it markets in the European Union; and
- at the end of each trimester, a list of all AIFs under management.
An AIFM managing leveraged AIFs must inform HANFA on the overall level of leverage used by each individual AIF under management. Where necessary to monitor systematic risk, HANFA may request additional information.
An AIFM must also prepare financial reports in accordance with accounting standards. In addition, it must prepare a report on the structure of its financial assets and liabilities, as valid on the last day of the semi-annual or annual reporting period. Annual financial reports must be audited by an external independent certified auditor. Semi-annual financial reports must be submitted within two months of the end of the reporting period; revised annual financial statements within four months of the end of the reporting period; and consolidated annual financial statements within six months of the end of the reporting period. The AIFM must publish financial statements on its official pages within the same deadlines.
Answer ... Key governance requirements can be found in the rules on the organisational requirements of AIFMs, which largely correspond to those set out in Appendix I of Directive 2011/61/EU. Depending on the type, scale and complexity of the AIFM’s business and the nature and range of its activities, the AIFM is under a general obligation to establish, implement and maintain decision-making procedures and an appropriate organisational structure, including a permanent compliance function, a risk management function and an internal audit function.
The AIFM must also:
- take all reasonable steps to avoid conflicts of interest and, where these cannot be avoided, to identify, prevent, manage and monitor and, where applicable, disclose them;
- implement effective organisational and administrative systems and controls, to prevent such conflicts from adversely affecting the interests of the AIF (or its investors);
- adopt appropriate liquidity management procedures, to ensure that the liquidity profile of each AIF’s investments complies with the AIF’s obligations;
- ensure that the AIF’s investment strategy, redemption policy and liquidity profile are consistent with each other; and
- monitor the AIF’s liquidity risk through regular stress testing.
Generally, AIFMs and persons effectively conducting the business of an AIFM are obliged to:
- act conscientiously and fairly, and in accordance with the rules of the profession;
- act with due diligence;
- act in the best interests of the AIF and its investors;
- establish and effectively manage the resources and procedures necessary for the due performance of activities; and
- comply with the AIF Act and subordinate regulations.
Answer ... An AIFM must establish a comprehensive and efficient risk management system in accordance with its type, scope and the complexity of its business, to ensure the proper identification, measurement, management and monitoring of risks relevant to the investment strategies of the AIFs under management. The AIFM must establish, within the risk management system, a procedure for the assessment of the creditworthiness of issuers in which it intends to invest its assets and those of the AIFs under management. The AIFM must also adopt, apply, document and regularly update its risk management policy. Within the risk management process, the AIFM must determine:
- the risk profile of each AIF under management;
- the contribution of individual risks to the overall risk profile; and
- the acceptable degree of risk.
Risk management functions should be functionally and hierarchically separated from operative units, including asset management.
The AIFM should further:
- establish and implement an appropriate procedure for the detailed analysis of business during the investment of AIFs’ assets pursuant to their investment strategies, objectives and risk profile;
- ensure that risk can at all times be identified, measured, managed and monitored; and
- ensure that the risk profile conforms to the size, portfolio structure, investment strategies and objectives of the AIFs under management.
The AIFM must also determine the maximum level of leverage to be used for each AIF under management and the right to reuse collateral or guarantees approved under the leverage agreement.