Interview with Rhodri Mason, Head of UCITS Management at Man Group – What are some of the benefits of QIFs that managers should be aware of?
The key benefit is that QIFs give you Cayman-style investment flexibility, while speed to market can be significantly quicker than UCITS; QIFs can be authorised by Ireland within 24 hours. However bear in mind that QIFs have a minimum investment of EUR100k and SIFs of EUR125k.
How will AIFMD potentially increase adoption of QIFs?
One of the potential upsides of the Directive is that for the first time it will introduce a UCITS-style passport for European hedge fund structures from July 2013. So for managers looking for a European regulated fund structure with good speed to market, a high degree of investment flexibility, and a pan-European passport, QIFs and SIFs could be the answer. However, we first need to see where the level 2 guidance of AIFMD ends up on points like depositary liability and delegation.
QIFs already have more AUM than alternative UCITS; around EUR400billion. Could AIFMD negatively impact the growth of alternative UCITS?
I doubt it. For now UCITS remains the normal default option if you want an onshore regulated product for retail and regulated institutional investors. However, you are starting to see more of a nuanced picture between product types rather than what has in the past been quite a binary distinction between UCITS and Cayman.
I do think that for certain institutional investors who don’t need daily liquidity, but want the perceived security of supervision by an EU regulator and like the investment flexibility of a QIF, these could become a ‘third way’ to satisfy the EU investor base.
Why would a manager launch an alternative UCITS if they could replicate their Cayman fund in an onshore regulated QIF for institutions?
I think the key message is we still don’t yet know how the challenging parts of AIFMD will look. Assuming they aren’t too onerous it will then be a case of horses for courses. In product development, it’s going to be a case of thinking ‘Who exactly is my investor base and what product structure best serves their needs?’
Take a manager in July 2015 (when Cayman funds might passport to Europe under AIFMD) who wants to sell a strategy globally. To do so, the answer could be: a US master/feeder structure for US distribution; another Cayman for the rest of the world; a QIF for European institutions and then a UCITS for retail investors.
This is dependent on AIFMD having a favourable outcome. If depositary costs end up being 150 basis points, will managers still want to use QIFs?
I believe it is incumbent on the industry to keep depositary fees at acceptable levels in order to allow this EU initiative of AIFMD compliant fund structures to become a success. The question is where will depositaries end up; it’s basically a case of scenario modelling.
What’s your gut feeling?
I am optimistic. I think under AIFMD QIFs should continue to be a useful tool for hedge funds and how they get to market. For global firms like us, we are well positioned to meet investor demand for particular product solutions including AIFMD compliant products for EU institutions, whatever AIFMD ultimately looks like.
*QIF used in the interview refers to both QIF and SIF fund structures.