Investor confidence returning to Ucits post BlueTrend, says Wyllie

InvestorsOperational Risk
17 Nov, 2010

Investor confidence in Ucits funds appears to have recovered after a brief blip following the announced liquidation of the BlueTrend Ucits Fund last month, according to Christopher Wyllie, partner and head of portfolio management at Iveagh, the Guinness family office.

The $630 million onshore CTA replicator fund is to be liquidated on November 30 by BlueCrest Capital Management and Merrill Lynch Investment Solutions following concerns that the Ucits framework prevented the fund from properly tracking new opportunities in bonds and commodities. At the time of the announcement, the tracking error was cited as the main reason for closing the fund, which was up 11.69% this year.

However, investors now believe that the liquidation was unique to BlueTrend and not a wider reflection of Ucits funds as a whole, according to Wyllie.

“Investors, particularly funds of hedge funds (FoHFs) were initially unsettled by the liquidation of BlueTrend’s Ucits fund. Some people questioned if this was the first in a series of liquidations of Ucits funds. However, it has become increasingly clear that this was a BlueTrend-specific rationale rather than an industry-wide one,” said Wyllie.

Potential tracking error, added Wyllie, may not have been the only reason to shut the fund down. According to the Absolute Ucits database, the tracking error at BlueTrend was 3.64%. However, in 13 out of 21 months to August 2010, HedgeFund Intelligence research showed that the tracking error was less than 0.5%, both positive and negative.

Other reasons could have contributed to the closure too, he said. These may include, for example, net fees being too low or the business model not being quite right, he added.

Wyllie also said many investors had now been reassured by the emergence of other CTA products in Ucits wrappers – another indication that Ucits funds were not on the ropes. “There are lot of good candidates out there now to replace that fund,” he commented.