11 November 2010, London:
UCITS-compliant hedge funds are delivering very similar performance to hedge funds in the more established offshore market, according to new research by HedgeFund Intelligence. The average 'tracking error' between hedge funds and their onshore counterparts for all strategies is little more than 3%.
This finding follows a major firm's recent decision to close down a UCITS version of one of its funds because the tracking error strayed outside what it regarded as acceptable limits. The research accordingly suggests that this was a relatively isolated case. HedgeFund Intelligence looked at 62 offshore hedge funds and their onshore UCITS counterparts – and found that the mean average tracking error since inception is 3.38%. The divergence was roughly evenly spread between those outperforming the offshore version on a monthly basis (over 52%) versus those underperforming (over 47%).
Equities strategies had the lowest mean average error margin at 2.94% while the highest was in macro, fixed income and futures strategies at 4.12%. The mean average for arbitrage, event- driven, credit and multi-strategy funds was 3.45%.
36 funds had a tracking error of less than 3%, 14 of which were less than 1%, 13 were between 1% and 2%, and nine were between 2% and 3%. Only four funds had a tracking error of more than 10%.
The research also found that the majority of fees for UCITS 'clones' are lower or the same as their hedge fund counterparts.
46 UCITS funds have the same or lower management fees and 56 have the same or lower performance fees. Only 16 have higher management fees and six have higher performance fees.
Three quarters of the 62 hedge funds have more assets under management than their onshore clones.
Commenting on the research Joy Dunbar, editor of Absolute UCITS, said:
“Critics have been saying that hedge fund UCITS are expensive because of the associated distribution costs. But our research actually shows very little fee disparity.
“Contrary to recent criticisms UCITS hedge funds tend to provide minimal tracking error, similar fees and daily or weekly redemption periods (as opposed to the monthly periods that are typical for offshore hedge funds). Taken together with the lower barriers to entry, this makes them a compelling investment case.”
About HedgeFund Intelligence:
HedgeFund Intelligence is the leading provider of news, analysis and performance data on the global hedge fund industry. The company provides dedicated information on US, European, Asian and African single-manager hedge funds as well as on hedge fund investors worldwide.
For more information, please contact:
Neil Wilson, Managing Editor, HedgeFund Intelligence +44 (0) 20 7779 7359 / nwilson@hedgefundintelligence.com
Europe: Toby Bates, Merlin Del Jones, Merlin +44 (0) 20 7726 8400 / tbates@merlinpr.com or djones@merlinpr.com
US: Armel Leslie, Walek & Associates: +1 212 889-4113 / aleslie@walek.com
Asia-Pacific: Sophie Sophaon, Walek & Associates: +852.2273.5102 / Mobile: 852 6112 7553 / ssophaon@walek.com