Last month saw the UCITS Alternative Index Global return 0.84 per cent according to its Geneva-based provider, Alix Capital. That leaves it up 0.50 per cent for the year. Nine out of 11 strategy indices made positive gains, the best performer being the UAI CTA index, which finished the month up 2.67 per cent to eradicate June’s loses and leave it up 0.60 YTD. The UAI Commodities index also did well, returning 2.18 per cent but despite this it is still down 0.52 per cent YTD. Macro and multi-strategy indices also finished with gains slightly north of 1 per cent. The two strategies that finished in the red were event driven and volatility, posting small loses of -0.29 per cent and -0.20 per cent respectively. Year-to-date the best performing strategy is fixed income, up 2.67 per cent, while the industry laggard is market neutral, down 1.41 per cent. Alix Capital noted that the total assets managed by hedge fund UCITS had increased by EUR4billion in July to reach EUR133billion.
Aquila Capital launched a new version of their UCITS-compliant Risk Parity strategy this week. The Hamburg-based alternative investment company has introduced the AC Risk Parity 17 Fund to extend its successful Risk Parity product range. The other two funds, offering different levels of volatility, are the AC Risk Parity 7 and 12 Funds; like its predecessors, the AC Risk Parity 17 Fund will offer investors a target volatility of 17 per cent. The fund allocates risk across a range of different asset classes, including equities, bonds, commodities and interest rates. Roman Rosslenbroich, co-founder and CEO of Aquila Capital commented: “We are pleased that we are able to offer a proven strategy to a wider investment base and believe that our unique investment approach and broad fund offering will be an attractive proposition to investors seeking absolute returns.” The AC Risk Parity 7 and 12 Funds have a combined AUM of EUR1.2billion. The strategy was one of the first UCITS III absolute return funds when it launched in 2008.
BNY Mellon’s Alternative Investment Services (AIS) business unit has had a strong year with total assets in alternative UCITS having risen an incredible 70 per cent year-on-year reported InvestmentEurope this week. As of January 2012, assets had rocketed to USD26.7billion: up USD11billion from January 2011. Since 2008, AIS has seen its total alternative assets under administration and custody more than double to over USD525billion. Marina Lewin, managing director at BNY Mellon Alternative Investment Services, said that managers remain under pressure to deliver “concise and transparent information” information to investors against a backdrop of ongoing volatility and regulatory uncertainty. Added Lewin: “As a result, hedge funds continue to look for a third party administrator they can trust and which can offer the flexibility and the depth and breadth of services to accommodate their individual tailored requirements.”
Although a consultation paper from the European Securities and Markets Authority (ESMA) has created concerns in the industry, the call for increased transparency from fund managers may not necessarily push up fees on low-cost ETFs as first feared. Specifically the paper implies that fund managers of ETFs and other UCITS-compliant investment vehicles that engage in securities lending with have to plough all the profits generated from such activity back into the fund, rather than keeping some for themselves.
As reported in FT Adviser, the paper says that ‘As far as revenue sharing arrangements are concerned, ESMA recommends that all revenue, net of direct and indirect operational costs, should be returned to the Ucits’. As for securities lending and liquidity risks, the paper states: “Many fund managers keep part of the benefits of security lending; there is no clear rule about passing on these benefits to the investors of the Ucits ETF.”
Reading between the lines this could mean that fees are driven higher. Then again, as long as managers can cover all the operational costs there should be no clear reason why fees would need to increase. Certainly Deborah Fuhr, partner at London-based research and consulting firm ETFGI, believes that to be so. The key wording in the paper is for ‘profits’ to be given back with Fuhr quoted in FT Adviser as saying: “They keep the costs so what gets delivered into the fund is the profit, so the fund performs better. The bigger impact is really going to be on traditional Ucits funds. Most Ucits funds have entered into securities lending and traditionally haven’t been as transparent about that.”