Data Requirements for PRIIPs Calculations

Understanding the data requirements for PRIIPs (Packaged Retail and Insurance-based Investment Products) calculations is crucial for ensuring accurate and compliant Key Information Documents (KIDs). This blog will outline the essential data inputs needed for these calculations, focusing on the prerequisites and specific data categories.
To perform PRIIPs calculations, FE fundinfo requires a blend of data inputs from asset managers. These inputs are categorized into general data, risk-specific data, performance scenario data, and cost-specific data. Key data inputs include:

Price History
The basis of any PRIIPs calculation is a recent list of prices. The price series needed by FE fundinfo differ based on the final calculation objective:

• SRI Calculation: Minimum 2 to 5 years of price history depending on the pricing frequency (daily, weekly, monthly). For daily observations, at least 2 years of data is required; for weekly observations, 4 years; and for monthly observations, 5 years. This historical data is crucial for calculating the Summary Risk Indicator (SRI) and ensuring that the risk profile of the product is accurately represented.
• Performance Scenario Calculations: Minimum 10 years of price history, using prices at month-end dates. This extended history allows for the calculation of performance scenarios over different holding periods, providing a comprehensive view of potential future performance.
• Stress Scenario Calculations: Uses the same history as the risk calculations. Stress scenarios are designed to show how the product might perform under extreme market conditions, and having a robust historical price series is essential for these calculations.

Proxy History
When the price history provided doesn’t cover the minimal required length, FE fundinfo can use a proxy to extend the history. Proxies can be used in cases such as insufficient history, dormant share classes, or significant policy changes. Proxies can be taken from another share class within the same fund, a similar fund, an index, a sector average, a composite proxy, or a custom proxy with stitched constituents. The selection of a proxy depends on the options available and the specific requirements of the share class. Proxies are rebased to the currency of the assigned share class if they are different, ensuring consistency in the calculations.

Total Return Series
Calculated based on the price and proxy history provided for the risk calculations. This series is a standard metric to analyse the fund’s performance over time and forms the basis for various performance and risk metrics. The returns are calculated for each period by taking the logarithm of the price at the end of each period divided by the price at the end of the previous period. These returns are then aggregated to form the Total Return Series, which is used to calculate various underlying indicators such as volatility, skewness, and excess kurtosis.

Client Inputs
Includes initial contribution, pricing frequency, credit risk measure, and various fees (entry, exit, management, transaction, performance). These inputs are necessary for all PRIIPs calculations and ensure that the calculations for risk, performance scenarios, and costs are accurate and compliant with regulatory standards. For example, the initial contribution is used to calculate the impact of entry and exit fees, while the pricing frequency determines the length of the price history required for the calculations.

Definitions and Acronyms 
To better understand the data requirements, here are some key definitions and acronyms used in PRIIPs calculations:

• PRIIPs (Packaged Retail and Insurance-based Investment Products): Financial products offered to retail investors that are packaged in a way that their value depends on the performance of one or more underlying assets.
• KID (Key Information Document): A document that provides essential information about a PRIIP to help retail investors understand the product's features, risks, and costs.
• SRI (Summary Risk Indicator): A standardized measure of the risk associated with a PRIIP, ranging from 1 (lowest risk) to 7 (highest risk).
• MRM (Market Risk Measure): A measure used to determine the market risk class of a PRIIP, based on the VaR-Equivalent Volatility (VEV).
• CRM (Credit Risk Measure): A measure used to assess the credit risk associated with a PRIIP.
• VaR (Value-at-Risk): A statistical measure that estimates the maximum potential loss of a PRIIP over a specified holding period with a given level of confidence.
• VEV (VaR-Equivalent Volatility): A metric used to calculate the Market Risk Measure (MRM) by adjusting for skewness and kurtosis in the return distribution.
• RHP (Recommended Holding Period): The period for which the PRIIP is recommended to be held to achieve the expected performance.
• Proxy: An alternative data series used to extend the price history when the provided history is insufficient.