Shorting of equities should be allowed in UCITS, says consultant

Wed Nov 24, 2010

Shorting of equity stocks should be allowed to reduce risks within UCITS hedge funds, according to a consultant.

Isabelle Tykoczinski, a consultant with Kinetic Partners, says that regulators should allow some shorting on a case by case basis especially for those managers with shorting experience. 

Isabelle Tykoczinski from Kinetic Partners

UCITS hedge fund managers use different methods to create portfolios in a fund. Some platforms hold assets directly; others use a swap to replicate the risk/return profile; and with CTAs there is also a hybrid method employed.

Tykoczinski explains: "Total return swaps and derivatives are being used a lot by UCITS-compliant funds that short. This is because UCITS rules do not allow investment managers to short stocks directly if they are using the wrapper. This, coupled with an increasing number of funds in this sector and the growing demand for ETFs, means that there is more demand for total return swaps.

"By using a total return swap, the investment manager should know that they are creating...

ISSN: 2151-1845 / CDC10004H

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