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Alternative Market Briefing

Preqin’s research shows UCITS hedge funds offer liquidity and transparency at the expense of returns

Thursday, March 28, 2013

Beverly Chandler, Opalesque London: Latest research from Preqin into UCITS compliant hedge funds asks what is their appeal to investors? Hedge fund compliant UCITS have been permitted since 2001. Prior to that, the legislation, originally passed in 1985, was targeted at creating a Europe-wide common set of regulations for long only mutual funds or unit trusts.

It was the third outing of the directive that widened the use of financial instruments permitted under the regulations, allowing fund managers to hedge their holdings. Preqin writes that since this time, the use of UCITS as a wrapper for hedge fund strategies has grown rapidly. "In 2002 seven hedge funds were launched which complied with UCITS regulations; now Preqin Hedge Fund Analyst tracks over 550 active UCITS vehicles."

One of the great appeals of alternative UCITS funds is that they offer investors increased liquidity, with the median redemption frequency of a UCITS vehicle being one day with a notice period of two days. Following the financial crisis in 2008, investors saw UCITS-compliant funds as vehicles that could satisfy their liquidity needs in an uncertain market.

There is also a greater degree of transparency in UCITS funds, which, Preqin writes, are attractive features to investors in the post-Madoff era. "In 2009 the proportion of fund launches represented by UCITS funds almost doubled to 13%, and in 2010 this increased even further to 17% of al......................

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