AIFMs unlikely to threaten Ucits

04 Sep, 2013

AIFMD is unlikely to pose a threat to the alternative Ucits industry, experts have said.

There is speculation AIFMD, which will enable fully AIFM-compliant hedge funds to market more freely complex products across the EU, could be a challenge to Ucits absolute return vehicles, which historically have adopted fairly vanilla and liquid strategies. Furthermore, AIFMD-compliant funds’ added investor protections could also incentivise investors to allocate at the expense of Ucits absolute return products.

This, however, has been challenged. “Even with AIFMD, there is still a growing demand for alternative Ucits structures outside of Europe, particularly in Asia and Latin America. We are encouraged by the prospects in the alternative Ucits sector and believe alternative strategies in a Ucits format will continue to attract investors across the risk spectrum in 2013 and beyond,” said Michael Sanders, chairman at Alceda, a Luxembourg-based Ucits platform.

The performance of Ucits hedge funds since 2010 has been solid bar a blip in 2011 when the average manager lost 3.89%, according to the Hedge Fund Research Ucits Indices. Preqin data also said 70% of Ucits hedge funds had posted gains over the last three years and half of those firms had generated returns exceeding 10% at significantly lower volatility than the S&P 500.

Preqin indicates there has been a 260% increase in the number of Ucits hedge funds since 2008 as investors express a preference for the brand’s generous liquidity terms and transparency in comparison to offshore vehicles. Despite all of the post-financial crisis hype around Ucits products, Ucits absolute return funds control just €154 billion, according to the Geneva-based Alix Capital.

Opinions on AIFMD are still firmly divided potentially giving Ucits absolute return funds some breathing space. Thirty-five per-cent of investors surveyed by Preqin reckoned the Directive would have a positive impact although 22% said the contrary. A study by BNY Mellon revealed 54% of fund managers anticipated an increase in the amount of capital invested in alternatives due to AIFMD with respondents citing the distribution benefits as being the key driver for this growth.

The initial cost implications of AIFMD, which BNY Mellon estimates to be between $300,000 and $1 million for a typical manager, could act as a deterrent to firms adopting an AIFMD structure. This, coupled with the uncertain remuneration requirements and dwindling European investor base, is likely to discourage offshore managers from embracing AIFMD immediately.

“It is hard to say whether AIFMD will impact Ucits adversely. A few years ago, people said AIFMD would prompt hedge funds contemplating a Ucits launch given the uncertainties around the final version of the AIFM directive. It will be interesting to see how things will develop now that AIFMD is being implemented,” said Louis Zanolin, CEO at Alix Capital.


AIFMDUCITSAlix CapitalAlcedaLuxembourgBNY MellonPreqinHedge Fund Research