For many investors, one of the most important requirements during the past several months has been liquidity. It’s not surprising, then, that a significant number of European investors have expressed an interest in UCITS III funds. In fact, in conversations with BHA analysts, many European investors have stated that they require hedge funds to be UCITS III compliant.
UCITS III funds are investment vehicles that apply absolute return strategies to a number of asset classes. The appeal of these vehicles stems largely from the fact that they are monitored by the European Commission and must abide by regulations put in place to protect investors’ capital. For example, UCITS III funds must offer daily and weekly liquidity. Additionally, they are required to provide transparency; that is, a UCITS III fund must keep investors apprised of the asset classes in the fund and the exposure it has to each strategy. Finally, UCITS III funds must follow a known set of risk-management guidelines.
BHA recently spoke with a midsized fund of hedge funds in London, England. The firm just made an allocation to a UCITS manager and plans on adding several more such managers to its portfolio. It stated that one of its main concerns is liquidity, which is why UCITS funds will account for a major portion of its portfolio.
UCITS III funds are a regulated investment vehicle for institutional investors. The majority of investor leads from Europe are citing UCITS funds as their main search criteria. With governments from around the world increasingly pressuring funds to be more transparent, regulated investment vehicles like UCITS funds are a perfect fit for many investors.
