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

Refining portfolio construction when alphas and risk factors are misaligned

In this research insight MSCI Barra explores the mitigation of misaligned risk and alpha factors by modifying the optimisation process. Firstly it reviews how to decompose a set of alphas into two components – one that is related to risk model factors, and one that is not. Then it shows how penalising the residual alpha

Alternative investments for institutional investors: risk budgeting techniques

This paper, produced by EDHEC Risk and Asset Management Research, presents an empirical analysis of the benefits of alternative forms of investment strategies from an asset-liability management perspective. Using a vector error correction model that explicitly distinguishes between short-term and long-term dynamics in the joint distribution of asset returns and inflation, we identify the presence

ESG in emerging markets comes of age

Gaining Ground is a report by Mercer, in conjunction with the World Bank’s International Finance Corporation, examining the integration of environmental, social and governance factors into investment processes in emerging markets. It includes the first ever rating on ESG practices in China, India, South Korea and Brazil. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Structured products: risk sharing or risk shifting?

In a research paper entitled “Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis” in the latest Financial Analysts Journal, Bruce Jacobs argues that highly complex financial instruments, were devised to shift risk from one part of the financial system to another, but the underlying systematic risk remained. And when magnified by huge amounts

Future looks bright for hedge funds

US consulting firm, Hammond Associates’ most recent alternative investments report, which highlights the fact there were very few places to hide in 2008, outlines the performance of the various asset classes and the outlook for the sector. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Casey Quirk’s Global Asset and Flows Review

Casey Quirk has released its inaugural Global Asset & Flows Review, powered by eVestment Alliance. This new publication, issued quarterly, provides key information about estimated assets under management and net new inflows reported by fund managers worldwide, with a particular focus on the U.S. institutional fund management marketplace.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous