Since the onset of the global financial crisis, investors worldwide have grown more cautious in undertaking investments and have increased their demands for underlying investment products and instruments to be monitored by international compliance standards. The Undertakings for Collective Investment in Transferable Securities or ‘UCITS’ was developed to meet this post-crisis demand, as UCITS embodied by strong regulation resulting to a high level of investors protection with certain restrictions such liquidity of the underlying assets and leverage caps to provide added transparency to investors.
Since the onset of the global financial crisis, investors worldwide have grown more cautious in undertaking investments and have increased their demands for underlying investment products and instruments to be monitored by international compliance standards. The Undertakings for Collective Investment in Transferable Securities or ‘UCITS’ was developed to meet this post-crisis demand, with certain restrictions such liquidity of the underlying assets and leverage caps to provide added transparency to investors.
Eurekahedge's UCITS hedge funds infographic sums up the industry as at July 2016. Find out more about UCITS hedge fund assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, domiciles, head office locations, performance comparison, and the best and worst performances of the year.
The provision of benchmark indices will, for the first time, be brought within regulatory scope in the EU with the impending introduction of the Regulation on Indices used as Benchmarks in Financial Instruments and Financial Contracts, commonly referred to as the ‘Benchmark Regulation’, (the Regulation). The aim of the Regulation is to ensure the accuracy, robustness and integrity of benchmarks and the benchmark setting process. The Regulation introduces a requirement for the prior-authorisation/registration and on-going supervision of benchmark administrators, and prescribes conditions with regard to improving their governance structure; greater transparency of the benchmark production process; and the enhanced supervision of what are termed ‘critical benchmarks’.
What's happening on UCITS V? Where are we on implementation? Are we nearly there yet? Yes and no. The UCITS V directive comes into force on 18 March 2016. But additional implementing rules (known as 'Level 2') on the duties of UCITS depositaries and management companies dealing with those depositaries have yet to be finalised and will not come into effect until (at earliest) the third quarter of 2016. ESMA has consulted on but not yet finalised its additional guidelines ('Level 3') on sound remuneration policies for UCITS and AIFMD managers. There are various transitional arrangements affecting management companies' remuneration and fund disclosure requirements. There is likely to be further guidance from the FCA once Levels 2 and 3 have been finalised.
The Undertakings for Collective Investment in Transferable Securities, or ‘UCITS’, was designed to meet investor demand for well-regulated instruments monitored by improved compliance standards in the areas of investor protection, regulation and disclosure. The demand for UCITS products grew steadily after the financial crisis as UCITS hedge funds are of interest to investors especially during times of market stress. The regulatory bodies of the EU are continually updating and improving upon the product to maintain its relevance to investors, with the UCITS V being the most recent set of regulations implemented.
Switzerland has always been an attractive and relatively easily accessible market for the distribution of foreign funds. As at end-November 2014, the total volume of funds registered for sale to retail investors (including institutional share classes) amounted to more than CHF 850 billion. This is not the total market picture, however, as according to the Swiss National Bank, at the end of 2014 another approximately CHF 800 billion have been privately placed into securities accounts of Swiss and foreign private HNWI'’s and institutional clients held with banks in Switzerland.
UCITS, as defined by the EU, refers to the term ‘Undertakings for Collective Investment in Transferable Securities’. They arose out of calls for an increase in the regulatory oversight of alternative investment managers, setting strict standards in the areas of investor protection, regulation and disclosure. The regulatory bodies of the EU are continually updating and improving upon the product to maintain its relevance to investors, with the most recent UCITS V set of regulations to be implemented by 17 September 2014.
The use of established third-party platforms has become increasingly popular for asset managers launching UCITS-compliant funds in recent years. The indicators are that this trend is likely to be even more pronounced among managers seeking to establish alternative funds in compliance with the EU Alternative Investment Fund Managers Directive (AIFMD). This article provides an overview of some of the key considerations when negotiating the on-boarding of an asset manager onto an existing third-party platform in either the UCITS or AIFMD environments.
The European Securities and Markets Authority (ESMA)'s consolidated Guidelines on ETFs and other UCITS issues (Guidelines) entered into force on 18 February 2013. On the same day, the Commission de Surveillance du Secteur Financier (CSSF) published its Circular 13/559 incorporating the Guidelines into its supervisory practice. In addition, ESMA published Questions and Answers (Q&A) om 15 March 2013 (updated on 11 July 2013) on the practical application of the Guidelines.
The UCITS hedge funds industry has witnessed tremendous growth over the last four years, both in the number of funds and in assets under management (AUM). As at the start of 2013 the total number of funds in the industry is estimated at 949 with AUM standing at US$215 billion.
The German Ministry of Finance (BMF) on 20 July 2012 published the draft of a bill (Draft AIFM-Act) to implement the Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) into German law. Within the framework of implementing the AIFMD, the Draft AIFM Act provides, in particular, for the repeal of the German Investment Act (Investmentgesetz – InvA), which implemented the UCITS Directive 2009/65/EC (UCITSD) among other things.
A founder member of the European Union benefiting fully from free movement of capital and freedom of establishment within the EU, Luxembourg is also one of the largest global financial centres, benefiting from flexible and attractive legal, regulatory and tax regimes and a significant concentration of professional service providers to the financial services industry.
UCITS hedge funds have witnessed significant growth since 2007 as managers have continued to attract investment interest from insurance companies, pension funds and other institutional investors. As illustrated in figure 1, assets in UCITS compliant hedge funds have expanded nearly threefold with 912 managers overseeing US$190 billion of capital as at end-February 2012.
Recognition of ‘UCITS’ as a global brand for funds continues to go from strength to strength. In the years following the introduction of the potential for such funds to take advantage of additional investment options more typically associated with the alternative industry and hedge funds (in particular further to the ‘UCITS III’ regulatory
Recent research shows that the number of alternative managers utilising UCITS as their fund structure is growing steadily, with the overall number of ‘newcits’, or alternative UCITS, now in excess of 1,000, of which nearly 700 were established since the financial crises of 2008. However, following the successful implementation of the UCITS IV regulatory updates earlier this year, increased attention is now focusing on how best to capitalise on the international restructuring opportunities available for UCITS in this new environment.
UCITS III hedge funds have continued to post significant gains through 2011, both in terms of assets under management (AuM) and the total number of funds. As at end-August 2011 we estimate there to be 740 unique managers1 with assets of nearly US$200 billion.
The drift of funds from offshore jurisdictions to Ireland is continuing, with further asset managers announcing they are to take advantage of Ireland’s streamlined redomiciliation regime to move existing funds to Dublin.
A recent example was the Sarasin Guernsey fund range, which has been active in Guernsey for 20 years but recently announced that it is redomiciling to Ireland in order to enable the funds to be registered as UCITS.
Cyprus is a cost-effective EU, OECD, FATF and Euro Zone jurisdiction with the lowest corporate tax rate in the EU. Its business and commercial law is based on English law. It offers platforms for pursuing alternative investment strategies both through Cyprus UCITS and through Cyprus alternative investment funds. Cyprus has also reputed professionals regarding investment fund administration and taxation; e.g. 90% of Cyprus accountants hold one of the two top UK professional qualifications and have acquired significant experience in the financial centre of London.
Under the auspices of UCITS III, management companies (“ManCos”) and self-managed investment companies (SMICs) have been organised and maintained in accordance with the requirements of the Management Directive (Undertaking for Collective Investment in Transferable Securities Directive 2001/107) such that the board of directors are required to carry out eight key functions, being: decision taking, monitoring compliance, risk management, monitoring investment performance, financial control, monitoring capital, internal audit and supervision of delegates in the course of their management of the relevant UCITS.
The interest among investors for UCITS III hedge funds surged in 2010 and has continued into the start of 2011. In this report, we monitor the developments in UCITS III hedge funds and touch upon some of the key aspects of the industry such as location of managers, strategies being employed as well as looking at some of the main performance trends.
In the aftermath of the financial crisis, demand on the part of institutional investors for more regulated, transparent and liquid collective investment schemes, and continuing uncertainty over the impact of the Alternative Investment Fund Managers (AIFM) directive on their marketing activities in Europe, have led to increased interest on the part of Asian hedge fund managers in so-called "Newcits" – UCITS (Undertakings for Collective Investment in Transferable Securities) funds which pursue hedge fund type strategies and invest in derivatives for speculative purposes as opposed for efficient portfolio management.
UCITS III appears as the gold standard, strict enough to give investors comfort and flexible enough to accommodate a large number of traditional and alternative strategies. However, in the UCITS market, one size does not fit all. The UCITS framework is heterogeneous – shoehorning strategies is a threatening practice and therefore, the label does not exempt investors from performing thorough due diligence.
Over the past year, the market has been flooded by a great number of UCITS regulated funds managed by hedge fund managers. UCITS hedge funds are said to manage nearly US$ 100 billion with 980 funds globally. Another 125 funds were launched in the first five months of 2010, with total net inflows standing at US$ 12 billion.
The phenomenal growth in UCITS III hedge funds over the last few years has been one of the most interesting developments in the global alternative investment sector. Currently, the Eurekahedge UCITS III Hedge Fund Database lists 7752 UCITS III products, with another 500 to be added in the coming months. Furthermore, the Eurekahedge UCITS Hedge Fund Index, the industry benchmark and most widely used tracker in the sector, consolidates the monthly performance of 236 funds.
Hedge fund strategies in a UCITS wrapper have become very popular among investors in recent years and more so since the financial crisis. Indeed, the proposal looks appealing as it is supposed to bring onshore in a regulated framework the hedge fund benefits which were previously available offshore and only for accredited investors. Furthermore, the UCITS framework apparently provides answers to investors’ current worries concerning transparency, liquidity, asset safekeeping and risk management.
Who would have thought a year ago, in the immediate aftermath of the credit crunch, that there would now be such a large number of UCITS hedge funds, encompassing almost the full range of investment strategies. There are not only relatively simple long/short equity funds but also an increasing number of more complex macro, arbitrage and commodity vehicles.
One of the key developments in 2009 has been the surge of interest in the UCITS III framework among alternative investment managers. Against the backdrop of the global recession and some major financial scandals, there have been increasingly vocal demands for greater transparency, risk management and regulations for hedge funds. In this situation, an increasing number of managers have started looking at the UCITS III platform as a way to not only meet the requirements of existing investors but also to market their funds to new clients who have traditionally been sceptical about, or unable to, invest in unregulated products while at the same time, utilise their unique alpha-generating strategies.
Act 35/2003 on Collective Investment Institutions ("Act 35/2003"), implementing UCITS III, introduced a new scenario for the Spanish collective investment institutions ("CII"). In order to develop this Act further, on October 13 2004, the Ministry of Finance published the first Draft Regulation on CII, which included one of the most eagerly-awaited developments: the regulation of hedge funds. However, it established requirements such as the calculation of daily NAV and the impossibility to invest in offshore hedge funds, which rendered the Spanish hedge funds market uncompetitive, since it was too restrictive.