Sun, 25/11/2012 - 11:10
It looks like European regulators are continuing to seek to limit the instruments that UCITS funds may invest in, with unregulated hedge funds the next out-of-bounds category.
A legal update released by Dechert LP this week refers to a formal opinion published by the European Securities and Markets Authority (ESMA) on 20 November 2012 related to Article 50(2)(a) of the UCITS Directive, which permits UCITS to invest up to 10 per cent of its net assets in transferable securities and money market instruments.
A number of national regulators including the Central Bank of Ireland and the CSSF in Luxembourg have interpreted Article 50(2)(a) as permitting UCITS to invest in unregulated investment funds, including hedge funds, provided the investment complies with eligibility criteria under UCITS. The Opinion provided by ESMA states that Article 50(2)(a) refers only to investments in transferable securities and money market instruments, and not to units or shares of collective investment undertakings.
ESMA therefore considers that UCITS may only invest in other UCITS or funds that are subject to equivalent supervision as UCITS. What this means is that UCITS with exposure to hedge funds will be expected to redeem such holdings “taking into account the best interests of investors and at the latest by 31 December 2013”.
The Q3 Alceda quarterly UCITS review, produced by Alceda Fund Management, has found that alternative UCITS fund launches and AUM continue to grow. Referring to the Absolute Hedge Global UCITS Index, the report found that fund numbers grew 2.4 per cent from 292 funds at the end of Q2 to 299 funds at the end of Q3: specifically, Q3 saw 11 fund launches, and four fund closures. In terms of AUM, the Index grew 3 per cent from EUR82.5billion in Q2 to EUR84.7billion in Q3. The report stated that macro and market neutral strategies accounted for over half of the new funds launched in Q3. As for the overall performance of the Index in Q3, equity long/short strategies came out on top, advancing 2.88 per cent for the quarter. Year-to-date, FX strategies lead the way, up 4.53 per cent.
Michael Sanders, Chairman of the Board, Alceda Fund Management, was quoted as saying:“Despite the difficult market backdrop, the Q3 Quarterly UCITS Review revealed continued growth, albeit somewhat muted, in new fund launches and AUM of alternative UCITS strategies. While equities have had a good run in the quarter…investors remain cautious. If you look at the evolution of alternative UCITS strategies over the last eight years, the progression made in both number of funds and AUM has been significant, demonstrating the increasing popularity and importance of alternative strategies in a UCITS format.”
SPDR ETFs – the exchange traded funds (ETF) platform of State Street Global Advisors (SSgA) – announced this week the launch ofSPDR BofA Merrill Lynch Emerging Markets Corporate Bond UCITS ETF on the Deutsche Börse and London Stock Exchange. The physically-backed ETF is managed by SSgA’s specialist corporate bond team. There are now 15 fixed income ETFs in Europe in the SPDR ETF range. The new fund has been launched to give investors access to a diversified portfolio of investment grade and high yield emerging market corporate debt, denominated in USD. It tracks a BAML benchmark covering more than 25 markets, 600 issues and 230 issuers with a minimum rating floor of CCC.
Commenting on the new fund, Scott Ebner, global head of product development at SPDR ETFs, said: “Investor interest in emerging markets continues to grow because of the positive long-term growth story. Clients are looking for opportunities to diversify their portfolios within emerging markets across both equity and fixed income. ETFs provide a liquid, diverse and cost-effective way to achieve that.” The fund is registered for sale in the UK, Ireland, Sweden, the Netherlands, Italy, Germany and France.
Paris-based La Française AM, is planning to build out a new investment solutions unitreported Citywire Global this week, as it attempts to improve its absolute return offering. The firm, which runs approximately EUR36billion in assets, is awaiting regulatory approval and expects to get the operation up and running by March 2013. CEO Patrick Rivière said the unit would be composed of around 25 people from the investment banking and asset management world and that part of the new plan would be to launch alternative UCITS funds, focusing on cross-asset arbitrage and credit strategies. It will also offer investors “horizon” bond funds, where they will have the possibility of extending their holding period beyond the fund’s maturity date.
“We are convinced that there is a strong demand for these type of very precise products from both retail and institutional investors where you can anticipate their movements. The new Solvency II regulation will also accentuate this need,” Rivière was quoted as saying.
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