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Almost half of institutional investors considering Ucits funds in 2010

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Ucits III is attracting growing numbers of hedge fund managers and investors, according to a survey by Preqin.

In February 2010 Preqin carried out a survey of 50 institutional investors to determine the current demand for Ucits-compliant hedge funds.

Preqin also surveyed 60 fund of funds mangers to ascertain the present supply of Ucits funds in the hedge fund industry.

The investor survey found that eight per cent of all institutional investors surveyed allocate capital to Ucits funds, and all are European-based.

Thirty five per cent of institutional investors, including investors based outside Europe, are considering adding a Ucits vehicle to their hedge fund portfolio in 2010.

Four factors were most frequently listed by investors as the value added of Ucits: transparency (41 per cent), regulatory oversight (22 per cent), liquidity (22 per cent), and a strong risk management framework (11 per cent).

According to the fund of funds manager survey, 28 per cent of managers are currently running a Ucits platform, and a further 28 per cent are presently adopting Ucits style in their hedge fund portfolio.

Half (51 per cent) of European-based managers currently offer Ucits products, constituting the largest source of Ucits funds. 

Presently, 11 per cent of managers from the rest of the world run Ucits funds and Preqin predicts investor appetite for Ucits products to increase outside Europe, in places such as Asia, Latin America and the Middle East.

Better liquidity terms (27 per cent), investor demand (26 per cent), regulatory compliance (21 per cent), and benefits of the EU passport (six per cent) were the biggest incentives for managers to set up a Ucits structure.

Larger managers are more likely to offer UCITS, with 59 per cent of managers with assets under management in excess of USD1bn currently running a Ucits platform.

Nicole Rubbi-Clarke, editor of the report, says: “Ucits has become increasingly popular with investors, with eight per cent of investors surveyed currently allocating capital to Ucits-compliant hedge funds and a further 35 per cent of institutional investors considering making their maiden investment in 2010. The Ucits trend has been the strongest in Europe, however, features such as transparency, liquidity and backing by solid regulation are attracting investors worldwide to Ucits vehicles; we predict the Ucits universe will continue to expand particularly as investors remain cautious and calls for increased regulation of the industry continue. Growing numbers of managers, predominantly the larger and more established managers, are accommodating investor demands by offering Ucits products. Ucits offers solutions to mitigating risks, but it also has some drawbacks such as higher structural costs and investment restrictions.”

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