News & Events

2010 Overview: Key Trends in UCITS III Hedge Funds

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.

The size of the UCITS III hedge fund1 industry has grown rapidly both in terms of assets under management and number of funds. As at end-February 2011, we estimate there to be 719 unique managers2 with assets of nearly US$200 billion.

Figure 1 shows the growth in UCITS III hedge funds in the last three years.

Figure 1: UCITS III hedge fund industry growth over the years

The popularity of alternative investments under the UCITS III framework started to increase from 2007 onwards. Against the backdrop of the global credit crunch, the financial crisis and some major financial scandals, investors and regulators demanded greater transparency from hedge funds, better risk management and more regulations. In this situation, funds that follow a proper regulatory framework have witnessed greater interest from investors.

For hedge fund managers, the UCITS III platforms presents an opportunity, not only to meet the new requirements of existing investors but also to market their abilities to new clients who have traditionally not invested in their funds, either due to scepticism about unregulated products or because of internal rules preventing them from investing in such funds. At the same time, the regulations also allow enough flexibility for managers to implement their unique alpha-generating strategies after catering to some specific requirements. As such, we have witnessed a number of hedge fund managers developing and actively marketing UCITS III versions of their funds, while a few fund management houses have made wholesale changes to bring all of their funds within the regulations. Additionally…

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1In this report, we include funds employing absolute return strategies with a hedge fund like structure.

2 As opposed to multiple share classes, currency denominations and such like