02 December 2012

Hedgeweek: Luxembourg's regulator will effectively end use of UCITS fund promoters

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. Almost half of respondents (43 per cent) felt that the threat of regulation was adversely affecting the way they currently invest. To underscore the popularity of alternative UCITS products further, 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.  

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.

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". He added: “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.”

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