Research

2014 Key Trends in UCITS Hedge Funds

Introduction

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.

 

UCITS funds have become hugely successful over the years with the ‘UCITS-compliant’ branding becoming a huge draw for investors and something for alternative investment managers to aspire to, despite the relatively higher compliance costs. Their attractiveness to institutional investors comes from the increased transparency and disclosure of investments, limited leverage and attractive liquidity terms. Managers have also been looking towards the UCITS platform as a passport to access more European clients and market their funds to clients who are not qualified to invest in sophisticated products.

Implemented in mid-2011, UCITS IV, among many other enhancements help to provide the investor with more transparency, facilitate cross border fund distributions, reduce costs, achieve regulatory alignment, decrease the administrative burden and achieve economies of scale for the management companies. More recently, the UCITS V aims to reinforce some of the weaker points regarding investor protection and align the UCITS and AIFMD directives together. The key provisions include remuneration policies that are consistent with effective risk management, addressing discrepancies on the duties and liabilities of depositaries and harmonizing administrative sanctions. Member states have 18 months to transpose UCITS V into national law.

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