Developing Macroprudential Policy for Alternative Investment Funds

44 Pages Posted: 5 Dec 2017

See all articles by Koen van der Veer

Koen van der Veer

De Nederlandsche Bank

Anouk Levels

De Nederlandsche Bank

Claudia Lambert

European Central Bank (ECB)

Luis Molestina Vivar

European Central Bank (ECB)

Christian Weistroffer

European Central Bank (ECB)

Raymond Chaudron

De Nederlandsche Bank

Rene van Stralen

De Nederlandsche Bank

Date Written: November 30, 2017

Abstract

This joint ECB-DNB Occasional Paper aims to inform the ongoing discussions about an EU-level framework for operationalising macroprudential leverage limits for alternative investment funds (AIFs). It builds on, and extends, the analysis of an ECB-DNB special feature article published in the ECB’s Financial Stability Review in November 2016. First, this Occasional Paper presents new EU-level evidence suggesting that leveraged funds exhibit stronger sensitivity of investor outflows to bad past performance than unleveraged funds, which has the potential to exacerbate systemic risk. Second, it devises a framework for assessing financial stability risks from leverage in investment funds. This is applied to leveraged AIFs managed by asset managers in the Netherlands using Alternative Investment Fund Managers Directive (AIFMD) data for the two-year period from the first quarter of 2015 to the fourth quarter of 2016. Third, it discusses the potential effectiveness and efficiency of various designs for macroprudential leverage limits. To this end, it builds on the findings for the Dutch AIF sector and suggests design options for further exploration at EU level. Beyond assessing financial stability risks from leverage in the Dutch AIF sector, the case study aims to show how equivalent information on AIFs at the European level – which will be made available to the European Securities Markets Authority (ESMA) and the European Systemic Risk Board (ESRB) in the coming years – could be used when developing an EU-level framework for operationalising macroprudential leverage limits.

Keywords: asset managers, alternative investment funds, leverage, macroprudential policy, financial stability

JEL Classification: G23, G28, E61

Suggested Citation

van der Veer, Koen and Levels, Anouk and Lambert, Claudia and Molestina Vivar, Luis and Weistroffer, Christian and Chaudron, Raymond and van Stralen, Rene, Developing Macroprudential Policy for Alternative Investment Funds (November 30, 2017). ECB Occasional Paper No. 202, ISBN: 978-92-899-2864-9. Available at SSRN: https://ssrn.com/abstract=3082177

Koen van der Veer (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Anouk Levels

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Claudia Lambert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Luis Molestina Vivar

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Christian Weistroffer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Raymond Chaudron

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Rene Van Stralen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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