12 May 2010
As part of the CACEIS research chair on non-financial risks in investment funds, EDHEC-Risk Institute has surveyed UCITS and alternative asset managers, their service providers, external observers, and investors for their views of structuring hedge fund strategies as UCITS. The 437 respondents report assets under management of more than €13 trillion.
Some of the main results:
- Most respondents fear that structuring hedge fund strategies as UCITS will distort strategies and diminish returns. Many strategies, after all, would need to be altered to earn the UCITS label, and liquidity requirements would put the liquidity risk premium out of reach. 69% of participants think that the “liquidity premium of hedge fund strategies will disappear and that performance will fall” when hedge fund strategies are structured as UCITS.
- The survey suggests that institutional investors bound by quantitative restrictions will ask fund managers and distributors to repackage hedge fund strategies as UCITS. For instance, 62.5% of insurance companies envisage asking promoters/managers to restructure hedge fund strategies as UCITS.
- For their part, managers of alternative funds are concerned by the uncertainties surrounding the directive on alternative investment fund managers and may consider packaging their strategies as UCITS. 60% of alternative investment funds ery much agree that the AIFM directive leads to uncertainty about the distribution of funds; 65% of AIFs plan to restructure their funds as UCITS, whereas 25% do not.
- EDHEC-Risk suggests improved regulation of investment funds and properly designed incentives: incentives to invest in illiquid assets could be designed in regulated closed funds with a fixed horizon; incentives to adopt the AIFM directive must be given by modifying the prudential regulation of European institutional investors, notably insurers, and authorising them to invest directly in funds that comply with the AIFM directive; incentives to manage rather than to insure non-financial risks must be given by defining more clearly the responsibilities of distributors, asset managers, depositaries, and valuators.
Some of the main results:
- Most respondents fear that structuring hedge fund strategies as UCITS will distort strategies and diminish returns. Many strategies, after all, would need to be altered to earn the UCITS label, and liquidity requirements would put the liquidity risk premium out of reach. 69% of participants think that the “liquidity premium of hedge fund strategies will disappear and that performance will fall” when hedge fund strategies are structured as UCITS.
- The survey suggests that institutional investors bound by quantitative restrictions will ask fund managers and distributors to repackage hedge fund strategies as UCITS. For instance, 62.5% of insurance companies envisage asking promoters/managers to restructure hedge fund strategies as UCITS.
- For their part, managers of alternative funds are concerned by the uncertainties surrounding the directive on alternative investment fund managers and may consider packaging their strategies as UCITS. 60% of alternative investment funds ery much agree that the AIFM directive leads to uncertainty about the distribution of funds; 65% of AIFs plan to restructure their funds as UCITS, whereas 25% do not.
- EDHEC-Risk suggests improved regulation of investment funds and properly designed incentives: incentives to invest in illiquid assets could be designed in regulated closed funds with a fixed horizon; incentives to adopt the AIFM directive must be given by modifying the prudential regulation of European institutional investors, notably insurers, and authorising them to invest directly in funds that comply with the AIFM directive; incentives to manage rather than to insure non-financial risks must be given by defining more clearly the responsibilities of distributors, asset managers, depositaries, and valuators.
