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Developing macroprudential policy for alternative investment funds

Author

Listed:
  • van der Veer, Koen
  • Levels, Anouk
  • Lambert, Claudia
  • Vivar, Luis Molestina
  • Weistroffer, Christian
  • Chaudron, Raymond
  • van Stralen, René de Sousa

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. JEL Classification: G23, G28, E61

Suggested Citation

  • van der Veer, Koen & Levels, Anouk & Lambert, Claudia & Vivar, Luis Molestina & Weistroffer, Christian & Chaudron, Raymond & van Stralen, René de Sousa, 2017. "Developing macroprudential policy for alternative investment funds," Occasional Paper Series 202, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2017202
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    References listed on IDEAS

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    More about this item

    Keywords

    alternative investment funds; asset managers; financial stability; leverage; macroprudential policy;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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