Funds of Ucits funds popular although sceptics remain

02 Jul, 2012

The funds of Ucits hedge funds model is still valid, according to 70% of respondents to a survey by Alix Capital, the Geneva based alternative investment specialist.

Better regulation of fund counterparties, higher legal oversight and distribution advantages were cited as the chief benefits of using a fund of Ucits funds. Interestingly, tax advantages and diminished operational risk were of less importance to respondents.

Funds of Ucits funds’ popularity is debatable, particularly given their investable universe is fairly limited. Most single Ucits managers tend to trade long/short equity or bonds due to the Ucits liquidity restraints imposed on them. Those managers which try to shoehorn less liquid products into Ucits often find themselves criticised or arousing regulatory interest. Detractors also point out that funds of Ucits hedge funds are significantly more expensive than their offshore counterparts.

“I am incredibly surprised by those findings. The funds of funds model, let-alone the funds of Ucits funds model, as a whole is an expensive way to access hedge funds. A lot of investors are increasingly moving away from funds of funds in favour of cheaper alternatives and this is noticeable by the decline in launches we have seen,” said Andrew Ritchie, executive director at KB Associates in London.

According to Alix Capital’s figures, the number of fund of Ucits funds has grown annually by 64% on average since 2008. However, 41% of these institutions manage less than €20 million which is fairly indicative of their clout. Ritchie added funds of Ucits funds remained popular among traditionalist family offices and some Swiss private banks, although added “most investors are reluctant to pay the added fees associated with funds of funds as a whole.”

Survey respondents remained bullish on Ucits with 65% anticipating an increase in Ucits hedge fund Assets under Management (AuM) although 9% reckoned there would be a decrease in AuM.

The survey comprised mainly of single managers and funds of funds (76%) while the rest included banks, insurers, pension funds, high net worth individuals and service providers.

AuMGenevahigh net worth individualsinsurersKB Associatespension fundsUCITS