RESEAR CH
Key Trends in UCITS Hedge Funds 2014 The latest iteration does not dilute appeal A REPORT BY EUREKAHEDGE
U
CITS, as defined by the EU, refers to the term ‘Undertakings for Collective Investment in Transferable Securities’.
They arose out of calls for an increase in the regulatory oversight of alternative investment managers, setting strict standards in the areas of investor protection, regulation and disclosure. The regulatory bodies of the EU are continually updating and improving upon the product to maintain its relevance to investors, with the most recent UCITS V set of regulations implemented by 17 September 2014.
UCITS funds have become hugely successful over the years with the ‘UCITS-compliant’ branding becoming a huge draw for investors and something for alternative investment managers to aspire to, despite the relatively higher compliance costs. Their attractiveness to institutional investors comes from the increased transparency and disclosure of investments, limited leverage and attractive liquidity terms. Managers have also been looking towards the UCITS platform as a passport to access more European clients and market their funds to clients who are not qualified to invest in sophisticated products.
Implemented in mid-2011, UCITS IV, among many other enhancements, helped to provide the investor with more transparency, facilitate cross-border fund distributions, reduce costs, achieve regulatory alignment, decrease the administrative burden, and achieve economies of scale for the management companies. More recently, UCITS V aims to reinforce some of the weaker points regarding investor protection and align the UCITS and AIFMD directives together. The key provisions include remuneration policies that are consistent with effective risk management, addressing discrepancies on the duties and liabilities of depositaries and harmonizing administrative sanctions. Member states have 18 months to transpose UCITS V into national law.
Industry growth UCITS hedge funds have maintained a strong pattern of growth in 2014, with the industry delivering modest returns and also attracting plenty of new capital from investors. Currently the size of the industry stands at a record high of $275.2 billion, overseen by a population of 1,016 funds.
Over the last seven years the sector has witnessed different trends – a couple of downturns, a period of stagnation and two strong rebounds. In the year 2007, total assets in the industry stood at $105.5 billion, managed by 300 funds. The onset of the global financial crisis saw the assets under management (AUM) of the industry cut almost in half to $51.7 billion, before recovering sharply to
38 Fig.1 Industry growth over the years
1,000 1,200
200 400 600 800
0 2007 2008 2009 2010 2011 2012 2013 7-14 Number of funds AUM Source: Eurekahedge
100 150 200 250 300
50 0
Fig.2 Growth of UCITS hedge funds relative to global hedge funds (%)
50% 100% 150% 200% 250% 300% 350%
0% UCITS AUM Non UCITS Hedge Funds AUM
Source: Eurekahedge
Fig.3 UCITS hedge funds launches and closures
10 20 30 40 50 60 70 80 90
0
Source: Eurekahedge Launches Closures
NUMBER OF FUNDS
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 Jul 2014
AUM ($ BILLION)
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72