Are Hedge-Fund UCITS the Cure-All?

Are Hedge-Fund UCITS the Cure-All? — March 2010

2. Context: A Muddled Regulatory Agenda Encourages Structuring HF Strategies As UCITS

2.1 The Controversial AIFM Directive and the Future of the Distribution of Hedge Funds A proposal for an AIFM directive was released by the European Commission in April 2009. The hastily prepared directive proposal is almost certainly the result of the authorities’ desire to be seen responding quickly to the financial and economic crisis. It came in for harsh criticism for its general lack of consistency, and the Swedish presidency has released draft amendments that we consider the latest available version of the directive (EC 2009b) and to which, unless specified otherwise, we refer.

Figure 4: Does the AIFMD lead to uncertainty about the distribution of funds? (answers from AIFs) In all figures, the red wedges are the fractions of respondents who very much agree with the questions, the orange those who agree somewhat, and the blue those who disagree. An alternative measure is to look at the ratio of red wedges to blue wedges, i.e ., the ratio of those who agree strongly to those who disagree. In the questions below, as virtually no respondents disagree, this ratio is almost infinite!

3 - AIF stands for alternative investment fund; AIFM for alternative investment fund manager; AIFMD for the directive on alternative investment fund managers.

Uncertainties in AIFMD seen as penalising

2.1% Not at all 25% Somewhat

60.4% Very much so 12.5% I don't know

The first questions asked of the respondents had to do with the impact of the AIFMD. Most respondents expressed concerns about the uncertainties of the AIFMD, and consider its impact negative.

Figure 5: Does the AIFMD lead to uncertainties on the distribution of funds? (answers from legal departments)

The results below are those of managers of AIFs.

0% Not at all 17.6% Somewhat 76.5% Very much so 2.9% I don't know

The first uncertainty mentioned by respondants has to do with the distribution of funds. The AIFMD, even if passed, offers no clear passport for the effective distribution of these funds.

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An EDHEC Risk Institute Publication