The key to offering a robust UCITS platform to support hedge fund strategies is making sure that what is being offered is suitable for the specific clients being targeted, according to Ian Swallow (pictured), Head of UCITS Management at Man.
Over the last 10 years there has been a huge shift in market regulation. As hedge fund managers have moved into the UCITS space, so European regulators have been quick to increase the level of scrutiny on new launches. Put simply, the barriers to entry for launching an alternative UCITS fund are high. If you lack the ability to demonstrate a clear understanding of which strategies should best be targeted to UCITS investors, and to then work effectively with regulators to bring them to market, it is unlikely you will succeed.
With approximately 40 live funds spanning Ireland, Luxembourg and the UK, and over USD9billion in AuM (through end of May 2013), Man has built a formidable platform to support its clients looking for UCITS regulated products. But as Swallow emphasises, the approach has not been to simply shoehorn existing Cayman hedge fund strategies into a UCITS wrapper and hope for the best. A careful, measured approach is paramount.
“We’re not here to try and leverage off successful offshore hedge fund strategies, give it the same name in a UCITS format and try and sell it. We won’t compromise our investment strategy just to fit it into a UCITS wrapper,” says Swallow.
“We only create UCITS funds in strategies that are best suited to work under UCITS guidelines. For example, we wouldn’t look to package some of our credit strategies in a UCITS format as we wouldn’t be able to provide the required liquidity terms; it’s not right for that kind of investment. So we need to make sure that the funds we are selling are the right ones.”
At Man, UCITS funds have largely enjoyed great success, precisely because they have delivered on performance, and attracted investor inflows: a virtuous circle. Take the UCITS version of the GLG European Long-Short strategy. This has now soft closed with more than USD1billion in AuM as at the end of May 2013.
“Performance creates investor demand. Another in which we’ve seen really strong investor inflows is our GLG Japan CoreAlpha strategy,” confirms Swallow. A long-only strategy managed by Stephen Harker, it is currently up +24.49 per cent YTD.
Also key to Man’s success is its ability to leverage off years of structuring experience.
“We’ve onboarded funds spanning a range of assets, we’ve got good relationships with both legal counsel and the regulators themselves in Luxembourg, Ireland and the UK.
“This enables us to have more open conversations with them. We can explain the various risks involved in a proposed strategy and how we intend to manage those risks. It’s not about presenting something to the regulator and them saying yes or no, it’s more of a dialogue. We know the process of onboarding new funds, and we know how to explain things in a way that regulators understand.”
This expertise has helped Man successfully launch two UCITS-compliant managed futures funds for its AHL team, cognisant of the fact that both funds will readily comply with ESMA’s new guidelines on index creation and methodology.
“Fundamentally, to be able to offer useful, creative and successful alternative investment strategies within a UCITS framework, you need significant product structuring experience and resources,” confirms Swallow.
