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

Derivatives in emerging markets

This article by Dubravko Mihaljek and Frank Packer from the Bank for International Settlements,  reviews the derivatives market in emerging market economies, attempting to answer some basic questions such as how big the market is, who trades, which derivatives are most traded and how it differs from mature markets.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Options to improve the governance and investment of Japan’s Government Pension Investment Fund

This OECD paper suggests avenues for strengthening the governance and management of the Japanese Government Pension Investment Fund (GPIF), the largest single pool of pension assets in the world. It says the governance stucture falls short of international best practice and in some cases does not meet some of the basic criteria contained in OECD

Determinants of Sovereign Wealth Fund investment in private equity

This paper examines the investment patterns of 50 Sovereign Wealth Funds in 903 public and private firms over the period 1984-2009, and specifically the determinants of a SWF’s weight of direct private equity in their overall portfolio. The paper finds evidence that SWFs are more likely to invest in private firms in countries that have

How do hedge funds manage portfolio risk?

Gavin Cassar from The Wharton School at the University of Pennsylvania, and Joseph Gerakos at the Booth School of Business, University of Chicago, investigate the determinants and effectiveness of methods that hedge funds use to manage portfolio risk. They find that levered funds are more likely to use formal models to evaluate portfolio risk.mrec4inarticleinline Sponsored

Private equity in the 21st century

This detailed research looks at cross-sectional and time-series cash flow performance of  a large sample of private equity funds across a range of asset classes, and examines the relationship with the management contracts of those funds. It concludes, among other things, that there is some evidence that funds with lower GP capital commitments outperform.mrec4inarticleinline Sponsored

Real estate or infrastructure? Evidence from conditional asset allocation

This study by Tobias Dechant and Konrad Finkenzeller from the University of Rengensberg’s BS Institute of Real Estate, reassesses the role of real estate in the asset allocation processs, by considering a wide range of alternative and/or seemingly related assets, paying particular attention to infrastructure. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous