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Sophie

In its latest report, the hedge fund research firm PREQIN had some interesting research on Alternative UCITS (the report is freely available). Highlights included:

• 86% of investors in UCITS hedge funds are based in Europe
• Long/Short equity has been the most commonly sought UCITS by investors in the last 12 months
• Half of the UCITS hedge fund pursues a Long/Short strategy
• 12% of UCITS funds are managed by US based fund managers
• UCITS hedge funds returned 2.46% in Q1 2013 compared to 3.22% for hedge funds

First, I would like to outline the difficulty to analyze the funds and strategies universes which combine hedge fund managers and long only firms. Is the biggest fund under that category ( ie Standard Life Global Absolute Return Strategies Fund)– suitable under Alternative UCITS? With $25 billion under management is its weight appropriate ?

It makes sense to divide Alternative UCITS in two universes: Hedge funds and long only in order to identify the style of management and compare funds that are using similar investment guidelines.

Some allocators such as Daniel Capocci, CIO at Archidas selecting UCITS, explains that combining the brand of long only managers with specific Long/Short skills in hedge fund managers gives a good mix to investors, especially retail investors.

Yes indeed, Long/Short equity strategy is the strategy that probably fits the best under a UCITS format. We have addressed this issue in our interview with event driven managers.

Most asset allocators and investors recognize that the pool of talent is mainly European. See PSAM’s comment in this edition on their experience in bringing their US expertise under a UCITS format.

Finally, the levels of returns are still a critical aspect of UCITS funds at a time where retail and institutional investors are looking for yields! However, investors in general are aware that liquidity and regulation are limiting their investment processes and therefore their upside in performance. I remain extremely prudent on the level of communication to investors on strategies such as Risk Parity, especially when the performance volatility, ; as experienced in May and June, could have a negative impact on the UCITS brand.

When Matthias and I were at the GAIM Conference, we met several investors and asset allocators who were pleased to read more about the UCITS platforms and their models. Consequently, we have decided to provide even more insight on this specific universe and we will continue to follow in our coming editions.

We wish you a happy reading and are look forward to hearing your feedback !
Have a lovely summer !

Sophie
sophie@opalesque.com