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

exclusion may now last longer, as the Swedish proposal requires only that the European Commission make proposals regarding foreign AIFs within three years of the implementation of the AIFMD. In their comments, respondents also expressed concern about the uncertainties regarding the costs of depositary services made mandatory by the AIFMD (depositary costs are discussed in section 3.2.3). But, in general, uncertainties about the outcome of the AIFMD and about the distribution of regulated alternatives in Europe will deter investment companies from making the investments to comply with expected AIFMD requirements; instead, managers will seek other ways to distribute their strategies. Box 1: An agenda out of control will deter investment firms from making the investments to comply with expected AIFMD requirements The adoption of a European directive is drawn out and extremely complex. The draft proposed by the European Commission is discussed by the Council of Ministers, which comes back with its own proposals. These proposals, together with industry feedback, are summarised in a tentative compromise by the (Swedish) presidency in its issue notes. ECON is the parliamentary committee leading the negotiations. Jean-Paul Gauzès, a French member of the European Parliament, was assigned the role of lead rapporteur and has formulated a parliamentary position to be discussed with the Council.

Figure 6: Is the three-year exclusion penalising for offshore funds? (answers from AIFs)

5.1% Not at all 19.4% Somewhat 62.2% Very much so 13.3% I don't know

Figure 7: Is the three-year exclusion penalising for offshore funds? (answers from legal departments)

0% Not at all 17.6% Somewhat 82.4% Very much so 0% I don't know

Marketing by offshore funds will be prohibited for at least three years In addition, respondents (above all, from legal departments) are worried by the limitations on offshore funds. After all, non-EU AIFs will not benefit from a European passport in the short term. The initial AIFMD proposal mentioned a three-year exclusion of hedge funds. This

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