25 November 2012

UCITS funds to be prevented from investing with unregulated hedge funds

This article claims that it looks as if European regulators are continuing to seek to limit the instruments that UCITS funds may invest in, with unregulated hedge funds the next out-of-bounds category.

A legal update released by Dechert LP this week refers to a formal opinion published by the European Securities and Markets Authority (ESMA) on 20 November 2012 related to Article 50(2)(a) of the UCITS Directive, which permits UCITS to invest up to 10 per cent of its net assets in transferable securities and money market instruments.

A number of national regulators, including the Central Bank of Ireland and the CSSF in Luxembourg, have interpreted Article 50(2)(a) as permitting UCITS to invest in unregulated investment funds, including hedge funds, provided the investment complies with eligibility criteria under UCITS. The Opinion provided by ESMA states that Article 50(2)(a) refers only to investments in transferable securities and money market instruments, and not to units or shares of collective investment undertakings.

Michael Sanders, Chairman of the Board, Alceda Fund Management, was quoted as saying: “Despite the difficult market backdrop, the Q3 Quarterly UCITS Review revealed continued growth, albeit somewhat muted, in new fund launches and AUM of alternative UCITS strategies. While equities have had a good run in the quarter…investors remain cautious. If you look at the evolution of alternative UCITS strategies over the last eight years, the progression made in both number of funds and AUM has been significant, demonstrating the increasing popularity and importance of alternative strategies in a UCITS format.”

Commenting on the new fund, Scott Ebner, global head of product development at SPDR ETFs, said: “Investor interest in emerging markets continues to grow because of the positive long-term growth story. Clients are looking for opportunities to diversify their portfolios within emerging markets across both equity and fixed income. ETFs provide a liquid, diverse and cost-effective way to achieve that.” The fund is registered for sale in the UK, Ireland, Sweden, the Netherlands, Italy, Germany and France.

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