Last month the European Commission rolled out its draft Alternative Investment Fund Managers Directive, which is designed to bring order and regulation to the supposedly chaotic and stabil
Last month the European Commission rolled out its draft Alternative Investment Fund Managers Directive, which is designed to bring order and regulation to the supposedly chaotic and stability-threatening hedge fund and private equity sectors. Among a range of measures that have aroused the ire of virtually the whole alternative fund industry, the draft directive includes a provision for something resembling a ‘passport’ for private placements that would allow managers authorised under the legislation to raise capital freely throughout the EU from suitably qualified investors.
Such a measure to bring uniformity to private placement rules throughout the EU has long been close to the top of the industry’s wish list. But is a special new regime for alternative funds really necessary when – for hedge fund managers at least – one already exists, and is tried and tested from the point of view of investor protection and regulatory efficacy?
It’s called Ucits, for Undertakings for Collective Investment in Transferable Securities. Devised in the late 1980s to create a single set of rules that would allow funds authorised in one member state to be freely sold without further regulation in all the others, the series of Ucits directives have proved so successful that funds authorised under the EU rules are now waved through by regulators around the world, especially in Asia.
And since the Ucits III directives (there were actually two) came into force in 2003, the regime has offered an avenue to offer alternative investments to a much wider market by extending to funds that use derivatives to implement hedge fund investment techniques the same authorise-once-market-anywhere freedom originally designed for plain vanilla equity and bond funds.
‘Ucits III is rapidly becoming the fund platform of choice for institutional asset managers and hedge funds launching alternative strategies onshore in Europe,’ Andrew Wilson, managing director of global markets financing and services at Bank of America Merrill Lynch told the audience at a conference organised by the bank this week.
Wilson was echoed by Paul Marshall, chairman and chief investment officer for manager-led strategies at leading London hedge fund manager Marshall Wace, who said: ‘Ucits is to European fund management what GSM is to mobile phones – a Europe-wide standard which not only creates a single market but enables European providers to export their products to virtually all markets worldwide except the US.’
Certainly, the Ucits route will not suit every alternative manager. ‘Ucits III is ideally suited to hedge fund managers with proven ability to deliver liquid and straightforward strategies,’ Marshall says, acknowledging: ‘Not all hedge fund strategies are suited to Ucits III.’ But the appeal of the regulated Ucits route can only grow with the introduction over the next couple of years of Ucits IV, which will offer further liberalisation on assets and investment techniques as well as greater freedom to promoters to launch funds domiciled outside the jurisdiction of their licensed management company.
As managers fret over what restrictions and stipulations might find their way into the final version of the alternative managers directive, it’s hardly surprising that increasing numbers of them are examining their ability to attract assets and pursue their chosen strategies under a regime that enables them to market their products to investors throughout the entire European market – and beyond.
