In virtually all major global financial markets retail and institutional investors alike are able to buy UCITS funds – except US investors.
US-based retail investors are unable to buy the global phenomenon and the greatest European financial services export – UCITS – because their financial regulators do not permit the sale of these funds.
US-based institutional investors can use UCITS vehicles – but only through a cumbersome private placement regime.
Investors in Europe as well as Asia and Latin America have all embraced the regulatory wrapper because of the benefits it brings to investors – including increased liquidity, transparency and an extra layer of regulation (though investors into UCITS should of course also do their own due-diligence before investing in any fund.)
It feels like US-based investors are missing out on the democratisation of the hedge fund industry.
It is great in my view that many strategies, previously only available to high-net-worth individuals and institutional investors because of unfavourable tax treatment and high minimum amounts, are now available to the masses.
But US-based investors are excluded from the democratisation of the hedge fund industry via the UCITS wrapper – and thus are not benefiting from the convergence between the traditional asset management industry and the alternative industry which has created lots of opportunities.
At a time where national boundaries become less significant, the world gets smaller and increasingly connected, US-based investors should I think be able to get access to the strategies using the wrapper.
But there is a caveat. European regulators, who drew up the UCITS directives, have also created the Alternative Investment Fund Managers Directive.
This means by 2017 the national private placement regimes within Europe will be terminated and a passport required by all hedge funds being marketed into the EU.
This still leaves a long way from the greater degree of harmony required between the regulatory schemes in the US and the EU.
For a free trial of Absolute UCITS please click here.