23 Jul 2010
The rush among leading and emerging hedge fund managers to launch funds within the UCITS III wrapper has led to a backlog of registration requests with Luxembourg’s regulatory authority, the CSSF.
An investigation by The Hedge Fund Journal has found that some hedge funds that planned to begin marketing a new UCITS product in June are still waiting for a green light from the CSSF. Even though the number of UCITS hedge fund registrations in Luxembourg has swollen rapidly, there are increasing numbers of funds anxious to begin marketing to investors.
“The Luxembourg authorities are swamped at the moment,” said a CEO with one of Europe’s most widely known hedge fund firms. The firm, which is already in the UCITS market, has faced a delay of over one month and counting in attempting to get a new fund approved by the CSSF.
One result of the delay is that funds are having to postpone marketing a number of new UCITS strategies to potential investors. Another consequence is that leading hedge fund operators such as Paulson & Co and Traxis Partners, the firm founded by former Morgan Stanley strategist Barton Biggs, are in the process of preparing autumn launches of UCITS strategies, but don’t know when hard marketing to European investors can commence.
Though UCITS for hedge funds have been around in some form for over three years, the scars of the credit crisis and the Madoff fraud have sensitised investors to the need for more transparency and tighter counter party controls – both considered to be attributes of the new wrapper. More recently, the expected imposition of the proposed Alternative Investment Fund Manager Directive has meant that hedge fund managers see UCITS products as a good way to minimise the fallout for their businesses during a time of acute regulatory uncertainty.
But fund managers who pre-announce UCITS funds to gauge investor interest, before having secured registration, may run the risk of a backlash from the CSSF. In a worst case scenario, the Luxembourg regulator could postpone an application, costing a manager valuable weeks or months before official marketing of a UCITS fund can begin. With interest rising in the UCITS sector, managers are keen to launch products in the new market as quickly as possible.
The delays may be helping traditional money managers colonise the hedge fund space with generic absolute return products. Strategic Insight, a research consultancy, estimates that hedge fund firms manage less than $50 billion of the $200 billion attracted by UCITS hedge funds. The firm also notes that many of the UCITS funds launched by known hedge fund firms have had difficulty getting more than $100 million in assets.
The expected launch of a UCITS fund by Paulson & Co later this year on the Deutsche Bank platform is likely to draw more investor attention to what leading hedge funds can offer. The Paulson UCITS product is expected to blend a number of strategies rather than closely follow any of the manager’s existing offshore hedge funds. Paulson will hope to emulate the successful launch of Jabre Capital and Pictet’s UCITS convertible bond fund in February which raised €800 million.
Yet in such a new market, hits and misses abound and it is not always clear whether a fund manager can transfer success in the offshore space to success with a UCITS offering. Indeed, a UCITS bond fund set up by Brevan Howard in 2009 with $500 million of the firm’s capital has failed to attract major allocations from investors. As a result, the fund is being revamped.
Luxembourg is currently the favoured domicile for European institutional investors. But a number of hedge funds, including Marshall Wace have moved funds onshore in Ireland, instead of or in addition to opening UCITS funds. If delays continue to persist in Luxembourg some observers believe that Ireland may be placed to grow its share of registrations in the fast growing UCITS space.
An investigation by The Hedge Fund Journal has found that some hedge funds that planned to begin marketing a new UCITS product in June are still waiting for a green light from the CSSF. Even though the number of UCITS hedge fund registrations in Luxembourg has swollen rapidly, there are increasing numbers of funds anxious to begin marketing to investors.
“The Luxembourg authorities are swamped at the moment,” said a CEO with one of Europe’s most widely known hedge fund firms. The firm, which is already in the UCITS market, has faced a delay of over one month and counting in attempting to get a new fund approved by the CSSF.
One result of the delay is that funds are having to postpone marketing a number of new UCITS strategies to potential investors. Another consequence is that leading hedge fund operators such as Paulson & Co and Traxis Partners, the firm founded by former Morgan Stanley strategist Barton Biggs, are in the process of preparing autumn launches of UCITS strategies, but don’t know when hard marketing to European investors can commence.
Though UCITS for hedge funds have been around in some form for over three years, the scars of the credit crisis and the Madoff fraud have sensitised investors to the need for more transparency and tighter counter party controls – both considered to be attributes of the new wrapper. More recently, the expected imposition of the proposed Alternative Investment Fund Manager Directive has meant that hedge fund managers see UCITS products as a good way to minimise the fallout for their businesses during a time of acute regulatory uncertainty.
But fund managers who pre-announce UCITS funds to gauge investor interest, before having secured registration, may run the risk of a backlash from the CSSF. In a worst case scenario, the Luxembourg regulator could postpone an application, costing a manager valuable weeks or months before official marketing of a UCITS fund can begin. With interest rising in the UCITS sector, managers are keen to launch products in the new market as quickly as possible.
The delays may be helping traditional money managers colonise the hedge fund space with generic absolute return products. Strategic Insight, a research consultancy, estimates that hedge fund firms manage less than $50 billion of the $200 billion attracted by UCITS hedge funds. The firm also notes that many of the UCITS funds launched by known hedge fund firms have had difficulty getting more than $100 million in assets.
The expected launch of a UCITS fund by Paulson & Co later this year on the Deutsche Bank platform is likely to draw more investor attention to what leading hedge funds can offer. The Paulson UCITS product is expected to blend a number of strategies rather than closely follow any of the manager’s existing offshore hedge funds. Paulson will hope to emulate the successful launch of Jabre Capital and Pictet’s UCITS convertible bond fund in February which raised €800 million.
Yet in such a new market, hits and misses abound and it is not always clear whether a fund manager can transfer success in the offshore space to success with a UCITS offering. Indeed, a UCITS bond fund set up by Brevan Howard in 2009 with $500 million of the firm’s capital has failed to attract major allocations from investors. As a result, the fund is being revamped.
Luxembourg is currently the favoured domicile for European institutional investors. But a number of hedge funds, including Marshall Wace have moved funds onshore in Ireland, instead of or in addition to opening UCITS funds. If delays continue to persist in Luxembourg some observers believe that Ireland may be placed to grow its share of registrations in the fast growing UCITS space.
