Comment by Joy Dunbar, Editor of Absolute UCITS
UCITS is in many ways just the older and more established fund sibling of the Alternative Investment Fund Managers Directive.
European financial regulators, legislators and politicians created these respective fund structure regulations under very different circumstances.
The UCITS Directive was established to create a harmonised, uniformed and cross-border fund structure between different member states.
The AIFMD was the European response to the global financial crisis.
But as fund structure siblings they share many similarities as well as differences.
Why is this significant?
Since the AIFMD was formed initially in 2009, European regulators have responded by tweaking one framework – which also means changes to the other.
A change in UCITS Directive will have an impact on the AIFM Directive and vice versa – this is essentially because an AIF is defined, for regulatory purposes at least, as not being a UCITS.
A recent example of this comes with the new UCITS V Directive, which deals with issues like remuneration, depositories and liabilities, itself a direct response to the AIFMD. The new directive brings the UCITS framework into line with the latter.
There is an unwritten rule that UCITS funds, which are aimed at retail investors, have to be at the same standard or higher than funds which come under the umbrella of the AIFMD – which is aimed at institutional and professional investors.
While the so-called UCITS VI Directive is reviewing which eligible assets should be included in the framework in the future – which may or may not include illiquid assets and the use of derivatives –it will, I expect, also have implications for future AIFMD Directives going forward.
For the market, however, it will be all too easy to confuse one fund sibling with another – which may result in ensuing problems for fund managers trying to operate parallel funds under the AIFM and UCITS Directives.
Nevertheless, at least until the level two details of the AIFMD are published and transposed, I suspect that UCITS shall be the more attractive option.
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