AsianInvestor this week reported that Joe Chan’s Galaxy Asset Management, one of Hong Kong’s longest running hedge funds, had decided to shutter its China Absolute Return Ucits hedge fund just 19 months after inception. The fund, which at the time was the first Ucits-compliant, China-focused hedge fund to be launched by an Asian fund manager, launched with USD30million in November 2010. It has now earned another, albeit unwelcome, first by becoming the first known closure of a China alternative Ucits fund by an Asian manager.
The fund ceased trading at the end of May according to a Galaxy spokesperson. Based on the firm’s flagship Galaxy China Opportunities Fund, an equity long/short strategy, the aim was to tap into European investor appetite for China growth. However, it seems performance was not up to scratch: down 5.18 per cent between 1 May and 21 May, and down 26.04 per cent to 21 May since inception.
The fund was offered on Merchant Capital’s Dublin-domiciled Ucits platform. At the time, Galaxy decided against establishing its own Ucits-compliant structure. However, according to the spokesperson the primary reason for closing the fund was to “change the platform we worked with to our own platform”, without elaborating further.
Looking at performance for alternative Ucits funds in June, it was, rather disconcertingly, the fourth straight monthly loss. The UCITS Alternative Index Global returned -0.23 per cent, and despite a strong start to the year, is now down -0.33 per cent for the year. The only strategy able to generate positive returns last month was Fixed Income, up 0.30 per cent. All other strategies headed into negative territory. The worst performing strategy was CTA, down -1.69 per cent, as black box strategies struggled to deal with market movements. Year-to-date the worst performing strategy is Commodities, down -2.65 per cent, whilst the best performer is, unsurprisingly, Fixed Income: up 2.00 per cent. Within UAIX single strategy indices, all five posted positive returns. Volatility came out on top, returning 1.08 per cent to leave the strategy up 5.16 per cent YTD.
Earlier this week – 3 July 2012 to be precise – the European Commission published a proposal paper on UCITS V. The main objective of the draft directive is to clarify and to harmonise the level of investor protection in the EU through the alignment of tasks and responsibilities that are expected from the depositaries of UCITS. The Association of the Luxembourg Fund Industry (ALFI) said it welcomed the general thrust of the proposed text, noting that a harmonized European regulatory framework for depositaries’ duties and liabilities is likely to further enhance investor protection.
In a press release, ALFI wrote that “an optimum and uniform standard of investor protection across European Member States in turn is extremely important for European UCITS funds to remain a success story for EU retail investors”. The main context of the paper relates to the depositaries’ liability regime. The proposal clarifies that a strict liability standard applies to the depositary in cases of loss suffered by UCITS arising from a depositary’s negligent or intentional failure to perform its duties or in the case of the loss of financial instruments held in custody.
In these cases the depositary will be obliged to return financial instruments of an identical type or corresponding amount to the UCITS. The same level of liability will apply where custody of financial instruments has been delegated to a sub-custodian. The Commission’s position in the paper is that the depositary should carry the “burden of proof” that it has complied with its obligations in a situation where failure to perform its duties is suspected.
Question marks remain as to the overall level of liability that depositaries can be reasonably expected to assume. ALFI points out that if depositaries need to provide full coverage, and duties and liabilities are no longer shared by all participants in the UCITS value chain, this “concentration of risk in a small group of depositaries may result in increased systemic risk”. Camille Thommes, Director General of ALFI, commented: “Overall, ALFI is confident that the final directive will help determine the most appropriate rules for funds and fund depositaries whose activity is essential for the development of long-term savings in Europe and worldwide.”
Finally, UK-based investment manager, Smith & Williamson, is preparing to launch a Dublin-domiciled medium-dated corporate bond fund on Monday 16 July reported International Adviser. Investment-grade corporate bonds with a maturity of between six and 12 years will be targeted in the Smith & Williamson Medium-Dated Corporate Bond Fund. Ian Kenny will lead manage the Ucits-compliant fund, with Chris Lynas, who heads up the fixed interest team, providing support. The fund will invest in sterling, dollar and euro-denominated corporate bonds and can also invest up to 20 per cent in sterling supranational bonds and 10 per cent in gilts. Nick Hodgson, director of marketing and sales at Smith & Williamson, was quoted as saying: “The UK yield curve has been flattening at the short-end but is steeper between six and 12 years, presenting an opportunity for greater potential total returns alongside the greater duration risk.
