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

Research suggests global diversification works… eventually

An article written by AQR Capital Management colleagues, Cliff Asness, Roni Israelov, and John Liew, International Diversification Works (Eventually) was selected the best article in the prestigious Graham and Dodd Awards, a CFA Institute program honoring the top Financial Analysts Journal articles of 2011. It finds that despite the many critics of diversification, global portfolio

Does risk-based strategy diversification work?

This MSCI research note looks at the historical behaviour of two risk-based investment strategies and investigates their potential application in an institutional equity portfolio.   Does risk-based strategy diversification work?mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Enhanced estimates generate improvement in hedge funds

EDHEC-Risk Institute has conducted research looking at an application of the improved estimators for higher order co-moment parameters as they apply to the optimisation of hedge fund portfolios.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Systematic risk and the cross-section of hedge fund returns

This paper investigates the extent to which market risk, residual risk, and tail risk explain the cross sectional dispersion in hedge fund returns. The paper introduces a comprehensive measure of systematic risk (SR) for individual hedge funds by breaking up total risk into systematic and fund specific or residual risk components.

Growth in China wind and solar energy to slow

China’s 12th Five Year Plan sets out ambitious goals for de-carbonizing China’s electricity supply. The plan emphasises a large-scale expansion of renewable and low-carbon electricity energy sources.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Risk-based dynamic asset allocation

This paper proposes a unique dynamic portfolio construction framework that improves portfolio performance by adjusting asset allocation in accordance with a forecast market risk. It finds that modifying asset allocation to the market risk barometer offers investors the “promising opportunity” to meaningfully enhance portfolio performance across market environments.   To access the paper click below

Previous