Managers question use of Ucits when moving funds onshore
A survey of hedge fund managers has raised questions about the popularity of bringing offshore funds onshore in Ucits format, as a minority of respondents who are considering launching regulated funds expect to use the fund law.
The findings question the popularity of the Ucits fund law, whose fourth iteration is due to take effect across the EU soon.
When ‘onshoring’, just over three quarters (77%) of respondents said they preferred Irish Qualified Investment Funds (QIF) and Luxembourg Specialised Investment Funds (SIF).
Around half those surveyed have not run onshore variants of offshore products, and have no intention of doing so.
The findings are a boon for international financial centres such as Cayman Islands and British Virgin Islands, whose continued relevance some practitioners questioned amid initial momentum to run money in funds regulated in European centres such as Ireland, Luxembourg and Malta.
The report also found, while 24% of respondents have established onshore funds, around half of them said they preferred to keep offshore vehicles running alongside, and less than 5% had moved all their operations onshore.
Jean-Michel Loehr, chief of industry and government relations at RBC Dexia, said: “Co-domiciliation allows hedge fund managers to cater to investors that are not authorised to buy into Cayman funds with onshore products, while retaining their existing offshore strategies.”
Tom Brown, KPMG head of investment management for EMEA, said: “The market is starting to realise that even though 90% of alternative strategies can be replicated under Ucits, specialised structures such as SIFs and QIFs offer more flexible liquidity and transparency rules for hedge funds.
“Ucits still offers very robust protection for investors, but clearly the wholesale shift into alternative Ucits some had been predicting has not taken place.”
However, bringing funds onshore is not over.
A number of hedge fund managers said they would open onshore vehicles before Europe’s plans to regulate onshore funds under the Alternative Investment Fund Managers Directive take effect, in 2013.