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ALFI agrees with the principle that one share class’s specific features should not cause adverse impacts for holders of shares in other share classes of the same UCITS.
The creation of share classes gives access to hedging features that protect investors by reducing their risk. Prohibiting some types of hedging at share class level will be detrimental to the investors, especially retail investors, who are not able to have access to such hedging features outside of the UCITS.
ALFI agrees with the principle that share classes of the same UCITS should have a common investment objective and strategy achieved through a common pool of assets. ALFI takes the view that the key point is that the common pool of assets of the UCITS is managed according to a common underlying investment objective and strategy.
As a matter of principle, no distinction should be made between currency hedging and other types of hedging (e.g., duration, volatility). Provided that the share classes comply with the different principles determined in ESMA’s Discussion Paper, they should be allowed. In our view any type of hedging should be allowed at the share class level as long as the UCITS has put in place processes to mitigate any “contagion” risks between different share classes.
Rules to ensure the minimisation of contagion risk should not be overly technical otherwise they would not be practicable and/or would be unnecessarily costly. Existing operational and accounting segregation mechanisms already enable an efficient management of contagion and spill-over risks.
ALFI agrees with the principle of pre-determination. However this should not lead to imposing rigid quantitative limits which might raise issues under certain market conditions.
ALFI also agrees on the principle of transparency. However we would like to underline that fund documents such as prospectuses, KIIDs, annual reports and periodic reports already provide sufficient information as to existing share classes and their respective features.
One should avoid putting at risk the attractiveness of the European fund industry for both European and non-European investors and fragmenting the industry where there is rather a need for consolidation in line with the European Commission’s Green Paper on the Capital Markets Union.
A grandfathering clause in order to avoid costs to investors who are currently invested in such share classes and a transitional period to allow effective migration to the new rules would be necessary in the event that a restructuring of certain existing share classes would be necessary.