Posted inAbsolute Return

returns fail to dent ucits hedge fund appetite

In a special report, Preqin notes that the sector has expanded significantly since the introduction of Ucits III – which in 2001 broadened assets eligible under the Ucits scheme to include derivatives, thereby enabling hedge fund managers to mimic existing offshore strategies in a highly-regulated format.

Ucits launches gathered pace markedly after 2008, when trust in the traditional hedge fund industry was damaged by the decision of many managers to “gate” their strategies, as well as the Madoff scandal – factors which prompted many investors to demand improved liquidity and transparency.

Indeed, providers unveiled 83 Ucits hedge funds in 2009 (more than double the number launched in 2008) and a further 108 in 2010. While the rate of launches has since declined, Preqin now tracks more than 550 Ucits hedge fund vehicles open to investment, an increase of 260% in five years.

The structure has proved particularly popular in France, the firm notes, where almost two-thirds of hedge fund investors allocate to Ucits vehicles. In Spain, half of such investors use Ucits funds.

Largest Ucits hedge funds open to new investment
Fund AUM ($m) AUM date 
Standard Life Gars 25,694 Mar ’13
JPMIF Income Opportunity 7,667 Mar ’13
Amundi Funds Abs Vol Euro Eqs 3,060 Mar ’13
Amundi Funds Abs Vol World Eqs 2,586 Mar ’13
GAM Star Global Rates 1,541 Mar ’13
Schroder GAIA Egerton Equity 1,519 Feb ’13
Henderson Horizon Euro Corp Bond 1,410 Mar ’13
Dexia Index Arbitrage 1,233 Mar ’13
AC – Risk Parity 7 1,022 Feb ’13
ZEST Global Strategy 868 Mar ’13

Growth expected

Appetite for the sector is set to grow over the next year, in line with polling data from this year’s Expert Investor Europe conferences in Brussels, Stockholm and Milan. Professional investors at each of these events planned in aggregate to increase their exposure to so-called “absolute return” funds.

According to Preqin, demand will most likely come from fund of hedge fund managers (62%), asset managers (14%), wealth managers (8%), banks (5%), and family offices (5%).

“Appetite for Ucits hedge funds is lower among all other investor groups, suggesting that it is mainly firms that are managing money on behalf of clients, particularly those with high-net-worth or retail clients, that are targeting Ucits funds over the coming 12 months,” the report notes.

In terms of strategies, half of investors seeking to boost their Ucits hedge fund exposure plan to focus on long/short equity. About one-third say they will focus on macro approaches, while a quarter expect to increase their use of managed futures/commodity trading advisor (CTA) funds.

Performance lag

Meanwhile, Preqin data shows that Ucits strategies lagged their non-Ucits counterparts over the one, two, three and five years ending March 2013 – indicating that liquidity and transparency remain higher priorities for European hedge fund investors than relative performance.

As Expert Investor Europe reported last week, a Deutsche Bank poll revealed that most hedge fund investors consider compliance and regulatory frameworks to be their key concern this year.

A PDF of Preqin’s report can be downloaded from the company’s website, here.

Platinum members can view breakdowns of the voting from all of Expert Investor Europe’s events in the first half of 2013, in The Data Centre. Use the Country Data Summaries links on the right-hand side of the page to see how sentiment on various topics has changed.

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