The European Securities and Markets Authority (ESMA) first statistical report on European Union (EU) Alternative Investment Funds (AIF) finds that the sector in 2017, as measured by Net Asset Value (NAV), amounted to EUR4.9 trillion, or nearly one third of the total EU fund industry.
The report is based on data from 26,378 AIFs, or 80 per cent of the market, and will be published annually.
Funds of Funds accounted for 16 per cent of the industry, followed by Real Estate (RE) Funds (11 per cent), Hedge Funds (5 per cent) and Private Equity Funds (4 per cent). The remaining category of Other AIFs accounts for close to two-thirds of the industry (63 per cent), which highlights potential classification issues and therefore a more detailed analysis of this category will be carried out by ESMA. Most AIFs are sold to professional investors (81 per cent) but retail participation is significant (19 per cent), with the highest share in the Funds of Funds and Real Estate categories.
The AIF market in general has a relatively low risk profile, with limited use of leverage for most AIFs, except for hedge funds whose leverage stems mainly from their use of derivatives to increase their exposure (synthetic leverage), rather than from direct borrowing.
For most AIFs the liquidity risk is limited, as the liquidity of their portfolio is higher than the liquidity offered to investors. However, RE Funds are exposed to significant liquidity risk as they invest in illiquid assets while allowing investors to redeem their shares over a short time-frame. This liquidity mismatch is a concern, especially given the high share of retail investors in RE (26 per cent).
Steven Maijoor (pictured), ESMA Chair, says: “ESMA’s analysis of the data collected from AIFs, presented today, gives a first comprehensive overview of this important sector. The collection and analysis of data supports ESMA, and National Competent Authorities, in our work enhancing investor protection and promoting orderly and stable financial markets in the European Union.”
“Our data analysis has highlighted some issues requiring further attention, including the issue of fund classification, while the liquidity mismatches identified in the Real Estate Funds sector, with its important share of retail investors, indicates potential risks for investors.”
“This data will also support National Competent Authorities in their supervision of AIFs, and further strengthens supervisory convergence throughout the EU.”
