Leverage

Leverage means a fund’s exposure exceeds its net asset value. It can come from borrowing cash, from derivatives, or from reinvesting repo and securities-lending proceeds. A ratio of 200% means exposure is twice the capital.

For alternative investment funds, Article 6 of Regulation (EU) 231/2013 defines leverage as the ratio of exposure to net asset value. Managers calculate it under both the gross and the commitment methods. Under Article 111, leverage is substantial when exposure under the commitment method exceeds three times net asset value.

A policy should name the method, never just say “leverage”. Acclimetry’s leverage and borrowing limit offers a gross-exposure ratio, a notional ratio and a borrowing ratio, each over net asset value. Example: a 200 overdraft in the cash class against a 1,000 net asset value is 20% borrowing, a breach of a 10% cap.