This year heralds the point where many single manager
alternative UCITS funds will reach at least two or three year
This is the point that many fund managers have been waiting for
– as this milestone marks the point where professional
investors are more likely to make a commitment.
Some funds, since the growth of the alternatives UCITS
sector, have opened and closed very quickly because they failed
to capture investor imagination.
A difficult 2011 dogged the whole asset management world but
was particularly challenging for UCITS-compliant alternative
funds because it they represent a new sector.
However, the liquidity injection from the European Central
Bank’s long-term refinancing operations (LTRO) has
created more optimism in markets and they rallied earlier this
Meanwhile, the UCITS fund of funds sector remains a small
though not insignificant part of the market. With around 50
funds that have attracted assets under management of more than
$4.2 billion, as major investors in alternative UCITS they
have been a useful indicator of what is happening in the
2011 was a bad year for hedging strategies, and other asset
classes, with all indices down. So the sector badly needs alpha
to justify its unique selling point, fees and prove that it is
not merely a beta play.
Sector needs more breadth and depth in the
European equity strategies still dominate the alternative
UCITS sector by number of funds. But to create a truly diverse
sector also requires more funds specialising in other
strategies to be launched according to region and specialist
This ought to include underrepresented strategies that can
fit the wrapper such as equity event driven, macro,
multi-strategy, credit and fixed income.
More UCITS-compliant funds need to be established from
countries like China, Brazil and other Asian strategies. The
US, which has the oldest most established and largest hedge
fund sector, is also a key potential source for new funds.
Fund managers from all major regions should be encouraged to
launch UCITS-compliant funds to create deeper penetration.
The days when a fund which had good performance was able
simply to rely on the investor finding them are well and truly
Fund managers, even those with great performance, need strong
distribution capabilities or a distribution partner or
All asset managers need to have a clear distribution
strategy – which may include buying in funds to bring
assets under management above a certain level to attract larger
tickets from institutional investors.
This has meant that using an onshore and well regulated
wrapper, like UCITS, is better in the longer term for retail
clients – who may have traditionally gone offshore to
avoid tax – and institutional European investors
because they are required to hold less regulatory capital
against a UCITS asset.
This year’s milestone is an important one
– and could ultimately decide the fate of the