James Williams, news editor, Hedgeweek

Luxembourg’s regulator to effectively end the use of UCITS fund promoters, Newscape Capital Group launches 3rd specialist UCITS fund…

An institutional investor survey commissioned by Alceda has revealed that 73 per cent of investors do not feel that regulators are in tune with their requirements. The survey of 49 UK institutional investors was conducted by Kepler Partners LLP at the Global Macro UCITS Conference in London in October 2012.

Almost half of respondents (43 per cent) felt that the threat of regulation was adversely affecting the way they currently invest. To further underscore the popularity of alternative UCITS products, 80 per cent of investors surveyed said they were planning to increase their allocation.

However, transparency continues to be an issue, with 71 per cent of investors believing that the alternative UCITS space would benefit from greater transparency; in particular, the types of underlying instruments being traded. Nevertheless, around half of respondents said that they currently invested in swap-based UCITS.   

Manuela Fröhlich, Managing Director and Head of Global Fund Sales at Alceda,
said that regulation had “paved the way” for a healthy alternative UCITS sector, but at the same time “there are regulatory hurdles that investors are worried about, that are having a detrimental effect on their behaviour”. Added Fröhlich: “We strongly believe that in order to generate positive returns in the difficult market conditions it is essential to invest in alternatives and to avoid highly correlated traditional assets.

“Furthermore, we believe that a more collaborative approach between investors, fund providers, and regulators is needed to ensure that the correct products are available to meet the clear investor demand.”

Luxembourg’s financial regulator has effectively brought the curtain down on UCITS promoters
, companies which were used to guarantee the financial stability of UCITS funds. As reported by the Financial Times this week, under the previous rules the promoter of a UCITS fund to offer an ultimate financial guarantee to investors for the actions of the management company and the UCITS fund.

The Commission de Surveillance du Secteur Financier (CSSF) now believes that it is the asset management company itself that needs to prove its solidity, not the promoter. The circular issued at the end of October lays out that Luxembourg-based asset management companies will need to prove they are more solid to the CSSF by April 2013, and comply from July 2013 onwards. They will, under the new requirements, have to ensure that their centre of decision-making and administration is based in Luxembourg reported the FT.

Charles Muller, a Luxembourg-based partner at audit firm KPMG, was quoted as saying: “The new circular will have a financial impact on asset managers. They will need to reinforce their Luxembourg-based teams. Small managers will need to stop being small and add resources.”

In other news this week, London-based Newscape Capital Group has launched its third specialist UCITS fund, as reported by Hedgeweek. The Newscape Dynamic Rates and Currency Fund will target annualised returns of 12 to 15 per cent, with a volatility target of 10 per cent. The fund’s strategy will be to invest in the currencies and interest rates of OECD countries, providing investors with exposure to this area of the market in a liquid and regulated format.

Philippe Bonnefoy, Newscape’s chairman and CIO
is to lead manage the fund. Stephen Decani, Newscape chief executive said: “Philippe has spent over three years developing the quantitative strategy and models behind the fund and we are excited to be launching in to the market.”

Added Bonnefoy: “The currency market offers an exciting investment proposition as the majority of participants are not profit seeking. Central banks, sovereign wealth reserve managers, financial institutions, importers, exporters and consumers primarily use the market to hedge or settle financial transactions. This creates many opportunities for those investors seeking to gain from these inefficiencies.” 

Finally, Mark Saluzzi, president of the Association of the Luxembourg Fund Industry (ALFI) expects Mexico to authorize passive investments for UCITS in the first quarter of 2013, reported International Adviser this week. This first step could ultimately lead to opening up the investment universe further to include active funds said Saluzzi. Currently, pension funds in Mexico can only invest in ETFs listed on the country’s stock exchange.

Saluzzi was quoted as saying: “We hoped it would be in 2012, but a change in the government over the summer has led to four months of transition. We are hoping the expansion of the investment universe of eligible assets will happen in 2013.”

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