Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CONTEXT

Analysis of UCITS cross-border distribution market

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The UCITS Directive was originally designed to allow each European investment fund to obtain a passport granting pan-European distribution. Albeit a slow start, over the past de- cades UCITS have come to being increasingly recognised as a “brand” of excellence for retail funds. UCITS funds are today widely sold and highly valued worldwide; Very often, they are no longer set up to target only distribution in Europe, and even many are set up with the intention of cross-border distribution alone.

The UCITS Directive texts are available in the appendix.

UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds established and authorised in conformity with the requirements of Directive 85/611/EEC. UCITS I (“The 1985 UCITS Directive”) - Council Directive n o  85/611/EEC of 20 Dec. 1985: Principles for harmonisation. UCITS II: Never implemented due to lack of common understanding. UCITS III - Council Directives 2001/107/EC (“The Management Directive”) and 2001/108/EC (“The Product Directive”) of 21 Jan. 2002 amending the Council Directive n o  85/611/EEC: Broadening of investment possibilities, management company and simplified prospectus. UCITS IV - Directive 2009/65/ EC of the European Parliament and of the Council of 13 July 2009: Introduction of an European Management Company passport, cross- border master-feeder structures and mergers. UCITS V - The EC is currently consulting on proposed changes to the current UCITS Directive. UCITS V is targeted at issues such as clarifying the roles and responsibilities of depositaries and establishing a governance structure for asset managers’ remuneration.

Graph 10 displays the growth of the number of UCITS registered for cross-border distribu- tion over the past decade.

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UCITS I 2010 Number of funds registered Graph 10: Number of true cross-border funds registered UCITS III 24,900 15,000 25,000 35,000 45,000 55,000 65,000 1998 2000 2002 2004 2006 20068

62,812

45% growth in past 4 years

Source: Lipper & PwC 2011

International UCITS distribution currently represents 40% of UCITS assets, with sales taking place all over the world. EFAMA, in strict cooperation with other local associations, such as ALFI (Association of the Luxembourg Fund Industry), have been actively promoting the UCITS brand outside of Europe for a few years. UCITS seem to have gone far beyond their initial goal. Still, that initial objective of a truly integrated pan-European fund distribution model is yet to come, with open architecture slightly setting back and (given recent financial turmoil in Europe) Member States’ fears raising when it comes to other European financial institutions they cannot control. Nevertheless, UCITS IV will certainly impact the cross-border distribution of UCITS; It is foreseen and waited for from many industry players as a booster to their national, European and international distribution. There is no doubt that from 1st July 2011, managers of UCITS funds will have far greater flexibility to market and manage their products throughout the European Union and that most intend to capitalise on these opportunities to drive efficien- cies. The new UCITS IV directive will simplify the distribution of UCITS products throughout Europe, making it possible to set up cross-border master-feeder structures, have more effi- cient passporting and a reduced time to market. The number of countries of distribution can therefore be expected to increase. Yet, there seems not to be any rush toward taking advantage of UCITS IV: Market players appear to be adopting the wait-and-see strategy to make sure no distribution opportunities are missed by any too rushed manoeuvres, such as rationalising the number of funds they provide via fund mergers or pooling of assets.

Cross-border distribution of UCITS | page 21