Hedge fund returns threatened by UCITs structure

Research by EDHEC-Risk Institute reveals fear that structuring hedge funds as UCITS will distort the funds’ strategies and diminish returns.

The Institute surveyed UCITS and alternative asset managers, their service providers, external observers, and investors for their views on structuring hedge fund strategies as UCITS – the 437 respondents have a combined assets under management of more than €13 trillion.

In particular the survey found participants were worried about distortion of strategies through a disappearance of the liquidity premium, with 69 per cent reporting this change would cause performance to fall.

The survey suggests that institutional investors bound by quantitative restrictions will ask funds managers and distributors to repackage hedge fund strategies as UCITS. For instance, 62.5 per cent 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 (AIFMs) and may consider packaging their strategies as UCITS. Sixty per cent of alternative investment funds (AIFs) very much agree that the AIFM directive leads to uncertainty about the distribution of funds; 65 per cent of AIFs plan to restructure their funds as UCITS, whereas 25 per cent do not.

Sponsored Content

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.

Leave a Comment

GIC, Temasek eye trillions of growth in climate adaptation market

GIC, Temasek eye trillions of growth in climate adaptation market

Singapore’s two largest asset owners, GIC and Temasek, see attractive opportunities in climate adaptation solutions – a relatively underfunded area compared to decarbonisation. The former has already made selective adaptation investments and said the opportunity set across public and private debt and equity could increase to $9 trillion by 2050.

Sort content by

Managing Japan’s public pension reserve

Japan’s Government Pension Investment Fund (GPIF) has $1.4 trillion in assets and is the world’s largest pension fund. The institutional structure and the investment style of GPIF differ from those of other public pension reserve funds. This article describes how GPIF is structured and how it works,then compares it with Canadian and American public pension

Public pension governance and asset allocation

This paper from Matt Dobra and Bruce Lubich, of the Methodist University in North Carolina and the University of Maryland University College, respectively, analyses the relationship between governance, asset allocation, and risk among state and local government-operated pension systems in the United States of America. It is argued that governance influences investment decisions and risk profiles of public

A Framework for Examining Asset Allocation Alpha

Recognising that different asset allocation portfolios are suitable for investors with different needs, Jason Hsu and Omid Shakernia think it is probably too ambitious to establish a unifying structure for determining benchmark asset allocation portfolios. Instead, they propose a framework for thinking about asset allocation alpha, assuming that investors have suitably determined their asset allocation policy portfolio. And the framework is:

A healthier way to de-risk

Defined-benefit funds all over the world are focused on de-risking but the amount of innovation and players to meet this demand is wanting. Until now. A new report by the Pensions Institute at the Cass Business School examines the emergence of medically enhanced, underwritten or enhanced, bulk buy-ins, in which trustees buy a bulk annuity

Raising ESG ratings with improved returns

While environmental, social and governance factors may be all the rage in investment strategies, the right tools to measure results of their implementation would make tangible what skeptics might think are the emperor’s new clothes. Cue researchers Zoltán Nagy, Doug Cogan and Dan Sinnreich from MSCI with their December 2012 paper, Optimizing ESG Risk Factors

GTAA and institutional investment management

The $70 billion AIMCo uses global tactical asset allocation to help add return in excess of passive portfolios. This research piece details how it has used GTAA over the past few years, advising other funds that executing a successful GTAA requires developing world-class talent, systems, process and governance.   To access the paper click below

Previous