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Alix Capital reveals trends in alternative Ucits

Monday, July 02, 2012

Louis Zanolin
Opalesque Industry Update - Alix Capital, the Geneva-based provider of the UCITS Alternatives Index (UAI) family of indices, has published its latest survey on the UCITS hedge funds industry, the UCITS Alternative Index Trends Survey. The survey assesses outlook for the UCITS hedge fund sector and views on UCITS fund of hedge funds.

Results show that equity market neutral, macro and volatility strategies are likely to be the most popular allocations in the next six months. At least 50% of respondents for these three strategies intend to increase their allocation, with volatility the highest at 55%.Respondents are most likely to decrease their allocation to fixed income and long/short equity, with 24% and 18% of respondents respectively indicating allocation to these strategies will be reduced. Equity market neutral appears to be enjoying a steady increase, with intentions to increase allocation recorded for the last 18 months.

Sixty five per cent of respondents expect a rise in UCITS hedge funds assets under management in the next six months, with only 9% anticipating a decrease.

UCITS fund of hedge funds Seventy per cent of all respondents believe the fund of funds model is valid in the context of UCITS. Better regulation of fund counterparties and higher legal oversight are perceived to be the main benefits of UCITS funds of hedge funds, followed closely by the broader distribution possibilities offered by UCITS structures. Tax advantages and lower operational risk are seen as slightly less important factors.

Fifteen per cent of respondents do not believe that UCITS fund of hedge fund model is valid. When asked about drawbacks, respondents believe that the current number of single manager UCITS hedge funds is not large enough to effectively manage UCITS funds of hedge funds. The cost of UCITS fund of hedge funds compared to offshore fund of hedge funds and the limitation of strategies associated with the UCITS compliant structure were also cited as disadvantages.

From a portfolio management perspective, respondents believe that the main beneifts of the UCITS fund of hedge fund structure are higher oversight of underlying funds (and the associated lower due diligence requirements) and better rebalancing opportunities.

Louis Zanolin, CEO of Alix Capital, says: “Respondents believe the assets under management of UCITS hedge funds will continue to increase in the second half of 2012 and these results support our belief that the UCITS structure will continue to bring new opportunities and increased choice to investors looking to allocate to alternatives.

“UCITS funds of hedge funds are a natural evolution of the development of the single UCITS hedge funds market. Based on Alix Capital’s figures, the number of fund of UCITS hedge funds has grown significantly in recent years, with an average annual growth of 64% since 2008. That said, assets under management remain low for many of these funds, with 41% managing less than EUR 20m. While the advantages of single UCITS hedge funds are not being questioned and the vast majority of market participants are supportive of UCITS fund of hedge funds, their role is still debated by certain market participants. Fund providers need to carefully consider their investment and marketing proposition in order to transform UCITS funds of hedge funds into a long term success story.”

The survey was conducted in mid-June 2012. There were 60 participants including single fund and fund of fund managers (76%), with the remaining respondents made up of banks, insurers, pension funds, high net worth individuals and service providers. Fifty five per cent of all respondents are investors (fund of funds and investor groups).

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