The Case For UCITS: A Viable Option For US Fund Managers
The proliferation of Alternative UCITS vehicles coming to market over the past decade can be attributed to several factors. Regulatory changes have made it easier for hedge fund strategies to fit the mold, while in a post-crisis world, investors who grew cautious around traditional alternative investments have sought out alternate options. Alternative UCITS demand grew exponentially, driven heavily by hungry European institutional and retail capital, and hedge fund managers sensed an opportunity to access a previously unidentified, or no longer applicable, investor base. As of 2018, the alternative UCITS industry had AUM of $470 billion (“UCITS & Hedge Funds: A Successful Marriage”, SS&C – Kepler Partners; 2018). This compares to less than $50 billion prior to the Global Financial Crisis, according to Morningstar.
While many traditional hedge fund managers have successfully maneuvered into the space, the regulatory and administrative burdens involved can prove obtrusive, particularly for funds based outside of Europe – the home of UCITS regulation. The problem is further exacerbated in the case of emerging managers, many of whom have only recently overcome the costly and time-consuming process of building a traditional hedge fund structure and accompanying management company. Where an emergin manger does have the tools to create a UCITS structure, the opportunity set is ripe – 57% of UCITS investors would invest in the first 6 months, while 42% have no minimum AUM fund requirement (“2018 Alternative UCITS Survey”, Deutsche Bank; December 2018).
Enter the UCITS partnership platform – a concept whereby a firm with the regulatory, legal and often fundraising expertise partners with a fund manager to launch the latter’s product in a UCITS wrapper. In this paper we explore the potential benefits to US fund managers from partnering with such platforms, specifically the assistance in navigating the regulatory and fundraising hurdles. Further, we discuss the requirements that must be met by any manager considering launching a UCITS vehicle.
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