RESEAR CH
second place with 15%. Despite being conceived primarily for EU investors, the UCITS branding is becoming increasingly recognized worldwide, with a small but growing number of hedge funds in North America and Asia Pacific jumping on the bandwagon.
Domicile Fig.5a and Fig.5b show the breakdown by country for the UCITS and non-UCITS hedge fund industry. Luxembourg is the premier choice for UCITS funds, followed by Ireland, capturing 88.1% of the market share between them. This is in stark contrast to the
Fig.6a and 6b Geographic mandates by assets under management UCITS
Europe 39.1%
North America 3.2%
Latin
America 0.3%
Japan 0.1%
Global 51.5%
Europe 6.2%
Asia ex- Japan 7.5%
North America 22.2%
Asia ex- Japan 5.9%
Global 61.4%
Japan 1.1%
Latin
America 1.6%
NON-UCITS HEDGE FUNDS Source: Eurekahedge
only 6% market share for the two countries for non- UCITS hedge funds. Luxembourg played a key role in supporting and promoting UCITS during its early stages, gaining a significant head-start over other domiciles in attracting UCITS funds. While being a later entrant to the sector, Ireland has also been making good headway in growing its share of the business, and as such we expect both locations to gain further traction as the AIFMD is implemented in the region.
Fig.7a and 7b Strategic mandates by assets under management UCITS Arbitrage 1.9%
CTA/managed futures 1.7% Distressed debt 0.0% Event driven 2.7% Fixed income 43.9% Long/short equities 30.2% Macro 8.4%
Multi-strategy 9.3% Others 0.6%
Relative value 1.3% Source: Eurekahedge NON-UCITS HEDGE FUNDS Arbitrage 6.2%
CTA/managed futures 7.1% Distressed debt 3.8% Event driven 9.0% Fixed income 11.6% Long/short equities 27.3% Macro 12.3%
Multi-strategy 16.3% Others 1.8%
Relative value 4.5%
Geographic mandates Fig.6a and Fig.6b display the breakdown of assets allocated to UCITS and non-UCITS hedge funds according to their various regional mandates. Similar to non-UCITS hedge funds, the majority of UCITS hedge fund assets are invested with a global mandate (51.5%). Adopting a global mandate has helped fund managers diversify their risks and also access a wider selection of securities to capitalize on the latest macro trends. Unlike the rest of the hedge fund universe, UCITS funds have a disproportionately large amount of assets devoted to Europe at 39.1% – roughly 33% more than the allocation by non-UCITS hedge funds. This is a natural consequence of the investors and managers of UCITS funds being largely based in Europe, and thus favouring investments in the home countries with which they are familiar.
Fig.8a and 8b Strategic mandates by assets under management UCITS
<0.5% 13.8%
1.01% - 1.5% 32.3%
>2% 1.5%
1.51% - 2% 19.0%
0.51% - 1% 33.4%
1.01% - 1.5% 30.9%
Source: Eurekahedge NON-UCITS HEDGE FUNDS
1.51% - 2% 41.9%
>2% 2.9%
<0.5% 3.8%
0.51% - 1% 20.6%
Distribution of AUM across the various strategies has also varied over the years and the current breakdown is quite different from what it was six years ago – the most prominent being the decline of assets allocated to long/short equity funds. Most of this drop happened during the financial crisis when long/short equity managers witnessed heavier losses than most other strategies. As the hedge fund industry continues to grow and mature, investors also increasingly demand a less equity- centric style which offers more diversification benefits for their portfolios. However, the UCITS framework imposes liquidity constraints on managers, which somewhat limits their universe of available investments. Furthermore, complex strategies such as credit or capital structure opportunity strategies are difficult to replicate in a UCITS wrapper, especially with the 10% limit on exposure to any single issue. Long/short equities, fixed income and macro funds, which invest in relatively liquid asset classes, together make up 82.5% of all UCITS fund assets, compared to 51.2% for non-UCITS hedge funds. UCITS funds utilizing a multi-strategy are another popular choice and constitute 9.3% of the total industry AUM.
Fees One of the criticisms of the UCITS framework is that the additional layer of regulatory requirements would place a greater financial burden on fund
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