Jubilation subsides, but alternative UCITS here to stay
Wed Feb 29, 2012
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Comment by Joy Dunbar, Editor of Absolute UCITS
The number of new hedging strategies using the UCITS wrapper
has declined by 36%, according to the Absolute UCITS
global new fund survey (
see article here). But does this mean that the alternative
UCITS sector is in decline?
The jubilation surrounding hedge funds managers using the UCITS
wrapper has definitely slowed. But like any rapid moving sector
there is always a period of contemplation and review. I think
that we are currently going through a reflective period and
there are a number of reasons for this – barriers to
entry are a lot higher because of increased regulatory
pressures, volatile markets and an unstable economic
However, the environment for alternative UCITS remains strong.
The UCITS Directive is the only recognised global financial
regulatory framework that works to a consistent set of
standards. Other major regions where asset management firms are
based have not been able to compete because in the US the
industry tends to be inward-looking and in Asia there is less
incentive to have an economic union similar to that in Europe.
For this reason the UCITS Directive works for global asset
managers and it is easier to attract worldwide investors
(except US-based ones). The framework has created a brand that
has proved itself for its transparent nature, good governance
and its liquidity.
An increasing number of retail and institutional savers are
using the wrapper. Indeed the EC wants UCITS funds to be the
investment building block for a harmonised European-wide
pension scheme, called the Officially Certified European
Retirement Plan, which is currently being developed by
officials in Brussels.
But there is a cloud over the horizon for UCITS which needs to
be ironed out. Any potential issues regarding the use of
indices, credit default swaps, total return swaps and other
derivatives within the wrapper may not come to light until
there is a liquidity mis-match event within a fund.
How the sector could or would respond to such an event is
unknown until it actually occurs, and complex UCITS are not a
priority for the EU as the focus is still on Greece and the
National governments won’t be able to change the
UCITS directive if there is a crisis – which might not
make a resolution easier. But one thing seems certain to me:
one way or another, alternative UCITS funds are here to stay
– and will survive a crisis.
ISSN: 2151-1845 / CDC10004H