Policy clause
"Gross exposure no more than 150% of NAV": how to write it, test it and evidence it
A gross exposure cap limits the sum of long and short positions relative to net value. The clause must say which positions count, how derivatives are converted and whether cash is in the sum. Acclimetry's gross exposure template adds the absolute market value of every position and divides by net value; it does not convert derivatives.
Gross exposure may not exceed 150% of net asset value.
gross_exposureQuestions to settle before it can be tested
- Cash in the sum: the template counts every position, cash included, while the AIFMD gross method excludes base-currency cash and cash equivalents. The policy should say which it means.
- Derivatives: futures and swaps carry little market value. For a book that holds them, the leverage template's notional ratio reads stated notionals instead.
- Shorts: a short counts at its absolute value, and short-sale proceeds held as cash count again.
- Missing values: gross and net both need every position, so one unvalued holding makes the ratio not evaluated.
As a testable rule
Gross exposure template, long-only gross methodology: the sum of absolute market values over net market value. Hard maximum 150%, warning maximum 140%. For an AIFMD-style reading with derivatives, the leverage template's notional ratio is nearer, provided every position states a notional.
A testable wording and where it stops
The sum of the absolute values of all long and short positions, including cash, may not exceed 150% of net asset value. Derivatives count at their market value.
That wording matches the template exactly. Leaving cash out of the measured population would also remove it from net value, so a cash-free sum is not available. See the AIFMD gross method and leverage methodologies.
Worked example
Longs of 7.2m, a 1.8m short and 0.6m of cash sum to 160% of the 6m net value; without the cash, exactly 150%.
Rule template:gross_exposure methodology: long_only_gross
Bounds: warn max 140% · hard max 150%
| Holding | Class | Long / short | Market value |
|---|---|---|---|
| UK equities, long | Equities | long | 4,500,000 |
| US equities, long | Equities | long | 2,700,000 |
| Equity basket, short | Equities | short | -1,800,000 |
| Cash | Cash | – | 600,000 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Gross exposure | Breach | 160% | ≤ 150% warning ≤ 140% | -10% -20% to warning | ABOVE_HARD_MAXIMUM |
ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Gross exposure → UK equities, long 75%, US equities, long 45%, Equity basket, short 30%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
What each monitoring run records
Each run stores the gross ratio, its state and headroom, the gross and net totals, and the largest positions as contributors. A missing value produces a not-evaluated result, because it would distort both sides. A breach opens a case with its root cause.
Sources
- Commission Delegated Regulation (EU) No 231/2013, Art 7 (gross method), UK version · OGL v3.0 · Read on13 October 2026