Common use of Pre-contractual information Clause in Contracts

Pre-contractual information. Either the UCITS prospectus and/or the pre-contractual disclosure by Alternat- ive Investment Managers to investors, must specify the securities financing transactions and total return swaps that the respective funds are authorised to use and include a clear statement that those transactions and instruments are used. This is to “ensure that investors understand and appreciate the inherent risks before they decide to invest in a particular UCITS or” Alternative Investment Fund.298 The following information must be included in either a UCITS prospectus and/or the pre-contractual disclosure to investors for Alternative Investment Funds:299 · Acceptable collateral: description of acceptable collateral with regard to asset types, issuer, maturity, liquidity as well as the collateral diversification and correlation policies. · Collateral valuation: description of the collateral valuation methodology used and its rationale, and whether daily mark-to-market and daily vari- ation margins are used. · Risk management: description of the risks linked to securities financing transactions and total return swaps as well as risks linked to collateral management, such as operational, liquidity, counterparty, custody and legal risks and, where applicable, risks arising from collateral reuse. · Specification of any restrictions (regulatory or self-imposed) on reuse of collateral. Recital 15 of the SFTR highlights that the use of securities financing transactions and total return swaps can increase the risk profile of the respective fund. Therefore, it is crucial to ensure that investors in funds are able to make informed choices and are able to assess the overall risk and reward profile of a fund. This is further emphasised in Recital 20 of the SFTR where such information is necessary to ensure that investors understand and appreciate the inherent risks before deciding to invest in a particular fund. 297 Recitals 19 and 20 and Articles 13 and 14 SFTR. 298 Recital 20 SFTR. 299 This list is not exhaustive, but only outlines the most relevant sections for the purpose of this thesis. For an exhaustive list, see Section B of the Annex SFTR.