Agefi Luxembourg - janvier 2025

AGEFI Luxembourg 26 Janvier 2025 Fonds d’investissement M acro-economists very often focus on short-termmarketmovements and growthpredictions. Of course, this is important to project future govern- ment spending and eventual effects on em- ployment. Still, it can reasonably be argued that froma purely individual andwell-being perspective, this titillating of the emotional systemthrough excessive focus on short- termeconomic variables is a negative exter- nality ofmedia attention. Moreover,inthelongrun,growthratesandeconomic development might be influenced by much deeper processes.Inanearlierarticle,entitled EcologicalRatio- nality and the Multipolar World in the Agefi October issue, I argued that bottom-up processes that can be analysed as ecologically rational, potentially play a major role in the competition between different re- gions in the multipolar world. To remind, the main idea behind the notion of ecological rationality is that itisadaptedtothe,oftenuncertain,environmentfaced by real decisionmakers. This formof rationality canbe viewedas the result of a bottom-up honing of evolutionarily adapted fea- tures of decisionmaking through cultural evolution. Thereexistamacro-economicliteratureonsuchtypes of processes (BisinandVerdier (2001)).Amore recent account of cultural transmission and religion is pro- vided inBisin, Carvalho andVerdier (2023). Constructivistrationality,onthecontrary,istop-down in the sense that it is constructed in the minds of a bunch of decisionmakers and theorists. Incidentally, post-modernist ideology is such a kind of ideology constructedinthemindsofsomeintellectualsandde- cision-makers (Pluckrose and Lindsay (2021)). This kind of constructivist rationality that shares elements of soviet thinking differs fromother forms of beliefs, namelydifferent kinds of religions. Religions canbe viewed as cultural adaptations that are the result of anevolutionaryprocess andare thus ecologicallyrational.Thenotionsofecologicalversus constructivist rationality (Smith (2003, 2008) can thus be used to compare the equilibriums emerging in different environments. I donot refer toa specific re- ligionandagivensetofbeliefsassuchbutasbottom- up evolutionarily honed rationality. This enables to compare religions as ecologically rational with con- structivist top-down rational policies. The assump- tion is that excessive constructivist rationality in policies might lead to long run destabilisation and disequilibria. Recent research indicates that religion may play a major role in the growth of countries (Becker, Rubin and Woessman (2024)). The authors analyse how a macroeconomic production function may be influ- encedbyreligiousbeliefs.Moderngrowththeorycon- siders the standard elements such as capital, labour, human capital and total factor productivity as proxi- mate determinants of growth whereas the ultimate deeper causes consist in aspects such as geography, institutions and culture. Religions, which canbe seen as a set of sharedbeliefs, activities and institutions, af- fect individual preferences aswell as rules and regu- lations that shape individual interactions. Religions’ first channel is through the impact on risk taking,thriftinessandintertemporaldiscounting.The firsttolinkreligiousbeliefstoeconomicdevelopment wasWeber(1930).HisfocuswasonProtestantismand savingbehaviourthatinfluencescapitalaccumulation andgrowth.Guiso,SapienzaandZingales(2003)find thatCatholicsaswellasProtestantsencouragethrifti- nessandsaving.Suchdifferencesmightalsoinfluence the financial systems and Walker (2020) finds evi- dence of historical and cultural legacies. Another channel throughwhich religionmight play a role is through Human Capital. The first most evi- dent channel is through the trade-offof religious ver- sus secular education. The effect of secular education ongrowth and industrializationhowever seems am- biguous anddepends on the political system. The ef- fect of religious education is even more ambiguous given that it might crowd-out time spent on secular education and in some cases religious beliefs might stymie economic progress. AsTotal FactorProductivity (TFP) isnot onlya func- tion of technology but also of institutional cultural factors, it is impacted by how religions shape indi- vidual preferences and values. Notably, trust and openness to change can affect TFP through framing theefficiencyofmarketinteractions.Individualpref- erences and values also play a role in the adoption of newtechnologies. Religions through its impact on kinshipnetworks, may lead tomore impersonal ex- changes thus favouring thedevelopment ofmarket- basedeconomies.Apparently, theCatholicChurch’s banning of cousin marriage had such an impact (Henrich (2020)). Thismore impersonal trust andex- change is instrumental in the development of the fi- nancial architecture. Anothermechanismthroughwhich religion impacts growthisitspoliticaleconomyrole.Insomecases,au- thorities will use spiritual beliefs to legitimate their power. Those beliefs then immediately influence growth throughpolitical economy. It is interesting to highlightthatethnicdiversityespeciallywithreligious polarization negatively impacts per capita GDP growth. Incidentally, the polarization between post- modernist ideology and more traditional views is worrisome. Getting back to the notion of rationality, the funda- mental idea is that whatever kind of religion, can be viewed as ecologically rational and as an element of cultural evolution. Post-modernist ideology is con- structivist rational and has not evolved through an evolutionary process. This is why it might not be adapted. Interestingly, if you read political and eco- nomic processes through those lens, the conclusion that might be drawn is that the current problems in someEUcountries seemtobepartlydue toexcessive postmodernist constructive policies. Michel VERLAINE ICN Business School Michel.verlaine@icn-artem.com References Becker, S.O., Rubin, J. and Woessman, L. (2024) “Religion and Growth”, JournalofEconomicLiterature, 62(3),1094-1142 . Bisin, A. and Verdier, Th. (2001) “The Economics of Cultural Transmission and the Dynamics of Preferences”, Journal of Eco- nomicTheory 97(2),298-319. Bisin,A., Carvalho, J.-P. andVerdier, Th. (2023) “Cultural Trans- missionandReligion”,in TheEconomicsofReligion . Guiso, L., Sapienza, P. andZingales, L. (2003) “People’sOpium? ReligionandEconomicAttitudes”, JournalofMonetaryEconomics 50(1):225-82. Henrich,J.(2020) TheWeirdestPeopleintheWorld:HowtheWestBe- camePsychologicallyPeculiarandParticularlyProsperous. NewYork: Farrar,Strauss,andGiroux. Pluckrose, H. and Lindsay, J. (2021) Cynical Theories-HowActivist Scholarship Made Everything about Race, Gender, and Identity- And WhyThisHarmsEverybody, Swift Smith,V.(2003)ConstructivistandEcologicalRationalityinEco- nomics, TheAmericanEconomicReview ,Vol.93,No.3(Jun.,2003), pp.465-508(44pages) Smith, Vernon L. 2008. Rationality in Economics: Constructivist and Ecological Forms. Cambridge, MA: Cambridge University Press Walker, S. (2020) “Historical Legacies in Savings: Evidence from Romania” JournalofComparativeEconomics 48(1):76-99. Weber, M. (1930) The Protestant Ethic and the Spirit of Capitalism. TrasnlatedbyTalcottParsons,London:RoutledgeClassics,2001. On Religion, Rationality and Growth ByDr. SebastiaanNielsHOOGHIEMSTRA* O n 12December 2024, ESMA published its consultation paper in relation to draft regu- latory technical standards (“RTS”) for open-ended loan-originatingAIFs (“OE LO-AIFs”) pursuant toDirective (EU) 2024/927 (“AIFMD2”). This contri- bution provides an overviewof the key aspects of the proposed new rules under the RTS, in- cluding but not limited to sound liquiditymanage- ment, stress testing and li- quid asset requirements. AIFMD2enteredintoforceon15April 2024 and Member States have until 16 April 2026 to implement the AIFMD 2 provi- sions in their national frameworks.Amongst others, AIFMD 2 has introduced specific requirements for loan-originating AIFs (“ LO-AIFs ”), i.e. AIFs whose investment strategy is mainly to originate loans or, where the notional value of the AIF’s originated loans represent, at least, 50% of the NAV, and their managers. Inparticular,AIFMD2has, inaddition to additional rules applying to AIFs which originate loans and LO-AIFs, amongst others, introduced “top-up” organizational requirements to alternative investment fundmanagers (“ AIFMs ”). AIFMD2 requires LO-AIFs to be closed-ended. The reason for this is that long-term, illiquid loans held by AIF may create liquidity mismatches if an AIFs open-ended structure allows investors to redeem their fund units or shares on a frequent basis. Fur- thermore, risks related to maturity transformation would be mitigated, as closed-ended funds would hold originated loans tomaturity. Despitethis,itwillbepossibleforLO-AIFstooperate as open-ended, provided that the AIFM is able to demonstrate to the competent authorities of the AIFM’s homeMember State theAIF’s liquidity risk management system is compatible with its invest- ment strategy and redemption policy. AIFMD 2 has mandated ESMA to develop RTS to determine the requirementswhichOELO-AIFs and theirAIFMshave tocomplywith. The requirements to be included in the RTS include: - a sound liquiditymanagement system; - the availability of liquid assets and stress testing; and - anappropriate redemptionpolicyhaving regard to the liquidity profile of LO-AIFs. Those requirements shall also take due account of the underlying loan exposures, the average repay- ment time of the loans and the overall granularity and composition of the LO-AIF’s portfolios. Itistobementionedthatthementionedre- quirements with respect to closed-ended andopen-endedLO-AIFsunderAIFMD 2arewithoutprejudicetothethresholds, restrictions or conditions set out in the ELTIF,EuVECAandEuSEFregulations. The RTS for OE LO-AIFs When drafting the RTS, ESMA per- formed a “gap analysis” in relation to the suitability of the current liquidity management pro- visions applicable to all open-ended AIFs contained in Commission Delegated Regulation (EU) No. 231/2013 (“ AIFMD LVL 2 ”) for OE LO-AIFs. The assessmentwas donewithviewto identifyinganyexistingAIFMDLVL2gaps in relation to OE LO-AIFs. With view to OE LO- AIFs, ESMA did not identify any gaps in the AIFMD LVL 2 requirements. Instead, ESMA is of theviewthat theRTS shouldprovide aharmonized implementing framework tailored to the specifici- ties of OE LO-AIFs setting out parameters and ele- ments that AIFMs of such AIFs shall take into account when applying theAIFMD LVL 2 require- ments on liquiditymanagement so theycandemon- strate to the competent authorities that theLO-AIFs theymanage canmaintainanopen-endedstructure. The RTS stress that this does not imply that if an AIFMcomplieswith theRTS that they canautomat- ically set up anOE LO-AIF. Sound LiquidityManagement To demonstrate to competent authorities of their homeMember State that the liquidity riskmanage- ment systemof anOELO-AIF is compatiblewith its investment strategy and its redemption policy, AIFMs shall: - define anappropriate redemptionpolicyconsider- ing the factors set out inArticle 2 of the RTS; -determineanappropriateproportionofliquidassets that theOELO-AIF shall target tohold inorder tobe able to complywith redemption requests taking into account the factors set out inArticle 3 of the RTS. For eachOELO-AIF theymanage, shall through the life of thatAIF: - carry-out liquidity stress tests based onArticle 4 of the RTS. - have in place the appropriate liquidity risk man- agement systems tomonitor the elements set out in Article 5 of the RTS. Article 1 of the draft RTS also confirms that AIFMs that intend to manage OE LO-AIFs shall, in accor- dance with AIFMD 2, be required to select the ap- propriate liquidity management tools (“ LMT ”) as perArticle 16(2)(b) ofAIFMD. AppropriateRedemptionPolicy For each OE LO-AIF they intend to manage, AIFMs shoulddefine anappropriate redemptionpolicy and anappropriateproportionofliquidassetsthattheAIF should target to hold in order to be able to comply with redemption requests. The factors to be consid- ered include, amongst others, the targeted investor base,creditqualityoftheloanstobegranted,redemp- tionfrequencies,sustainabilityofredemptionsandan appropriate proportion of liquid assets that the OE LO-AIFs shall target. Availability of LiquidAssets AIFMs shall determine an appropriate proportion of liquid assets that the OE LO-AIFs they intend to manage shall target inorder tomeet redemption re- quirements.AIFMs should consider several factors, including, amongst others, the expected cash flows generatedby the loans granted, the redemptionpol- icyof theAIF, thematurityand thenumber of loans granted, aswell as the investor concentration. Inad- dition, AIFMs should determine the type of assets they consider as liquid. ESMA is of the view that it is not possible to specify in theRTS all the assets that canbe considered ex-ante as liquid. Therefore, inde- termining the adequate proportion of liquid assets, AIFMs shall exercise a prudent approach and con- sider as liquid the expected cash flowgenerated by the loans granted. Furthermore, AIFMs may also consider other in- vestments as liquid investments in so far as these in- vestments can be converted into cash, over the duration of the notice period, without significantly changing their value to meet redemption requests. Indeed, the duration of the notice period is an im- portant element AIFMs should consider in deter- mining the liquidityof the assets because the longer the notice period, more timeAIFMs would have to sell the assets tomeet redemption requests.Accord- ing to theRTS this implies that, for agivenasset, de- pending on the length notice period, AIFMs may decide not to consider it as part of the liquid assets because the value of this asset would be subject to a big discount affecting the overall liquidity available for meeting redemption requests. Liquidity Stress Tests Article 48AIFMDLVL 2 requiresAIFMs, inter alia, to regularly conduct stress tests, under normal and ex- ceptional liquidity conditions, which enable them to assess the liquidity risk of eachAIF under theirman- agement. In addition, the RTS note that the ESMA guidelines on Liquidity Stress Testing (“ LST ”) in UCITS and AIFs include a section dedicated to the LST of less liquid assets, which are applicable to OE LO-AIFs.InaccordancewiththeLST,AIFMsmanag- ingOELO-AIFsshallhaveastrongunderstandingof theliquidityrisksarisingfromtheassetsandliabilities of the fund’s balance sheet, and its overall liquidity profile, inorder toemployLST that is appropriate for theOELO-AIF itmanages. OngoingMonitoring AIFMs that manage OE LO-AIFs shall, as part of their demonstration to the competent authorities of their home Member States, be required to have in placethenecessaryarrangementstoassessandmon- itor the evolutionof thekeyelementsof theLO-AIFs theymanage. For that purpose,AIFMs are required tohave the ca- pacity to assess whether the liquidity management system remains compatible with the investment strategy of the OE LO-AIF and the redemption pol- icy offered to investors. AIFMs shall, in particular, monitor the evolution andperformance of the loans granted such as the repayment schedules, early sig- nals of possible defaults, the level of liquid assets or the behaviour of investors. TheRTS& the ELTIF 2.0RTS onLMTs Commission Delegated Regulation (EU) 2024/2759, i.e. the “ELTIF RTS”, lay down the specifics with re- spect to ELTIF redemption policies inmore detail. In particular, with respect to liquidity and LMTs, mini- mum holding periods, minimum notice periods, re- demption gates and liquidity pocket provisions that are applicable to open-ended ELTIFs. The require- ments laiddown thereinare, departing from16April 2026, cumulatively applicable to OE LO-AIFs estab- lished in the formof anELTIF. Outlook: Do theRTS accommodate the current OELO-AIF practice? With view to retailization, open-ended and ever- green LO-AIFs have recently gained popularity. Therefore, theRTS are highly relevant inpractice. In particular, for those LO-AIFs that fall within the ambit ofAIFMD2 and have been launched from15 April 2024, as no grandfathering applies to such funds and the respective AIFMs of these LO-AIFs havetodemonstratecomplianceasper16April2026. As to what “open-ended” means the RTS have not provided any further clarity. Hence, the existing in- terpretations apply, suchas, for example, those inre- lation to Commission Delegated Regulation (EU) No. 694/2014. Lastly, some disagreements were in place between asset managers, policymakers and regulators whether OE LO-AIFs should maintain a minimum level of liquid assets to protect investors in times of stress, similar as to those adopted for ELTIFs. The draft RTS do not contain any “hardwiring of mini- mumliquidassets”withrespecttoOELO-AIFsand, for the moment, ESMA seems to have acknowl- edgedthattheAIFMisbestplacedtounderstandthe liquidity profile of a particular OE LO-AIF. (*) Dr. Sebastiaan Hooghiemstra is a senior associate in the invest- ment management practice of Loyens & Loeff Luxembourg and Senior Fellow of the International Center for Financial Law & Governance at theErasmusUniversityRotterdam. ESMAConsults on RTS for OE LO-AIFs