Ucits III has been hailed as a global success, despite a number of setbacks. The arrival of Ucits IV means the European funds industry can now look forward to getting a much improved funds passport.
The master-feeder structure offers a solution to the contentious question of the so-called ‘management company passport’ (ManCo), first proposed for Ucits III but eventually dropped after fierce opposition from Dublin and Luxembourg among others.
Under the current system, a funds house must have an ‘authorised corporate director’ (ACD) in each country where it has funds for sale. The measure, reintroduced under Ucits IV under pressure from Paris, now allows fund houses to centralise the legal responsibility for a fund in a single ACD. If the ManCo is used alongside the new master-feeder structure, funds houses should be able to make significant cost savings. For smaller fund mangers, too, this presents an opportunity.
Reynaud says: “The management company passport will benefit mainly the small boutiques, which do not have the means to create a ManCo in each EU country. For large groups such as us, which already have existing structures everywhere, the impact will be limited.”
As for the Ucits investment powers, widened hugely under Ucits III, none have been added. The Ucits III remit was widened to include not just long-only and fixed income funds, but also derivatives and certain cash funds. “Ucits IV is about changing the directive to bring about benefits to consumers and industry through improved distribution and economies of scale only,” Vernon says.
Vernon is cautious about whether Ucits IV will be applied consistently across the EU. National regulators still have some powers to delay approval if they have concerns about a particular fund’s structure or investment strategy.
Vernon says: “But if all documentation is in order, approval should come within a week.”
Lehmann says: “We expect the national regulators to implement the new directive to the letter. But the real test will be if all adhere to it within the intended spirit. The newly created pan-European authority ESMA [European Securities Marketing Authority] should help to ensure that all individual regulators stick to the spirit of Ucits IV.”
Reynaud says: “EU countries do not have the choice – they must implement in full Ucits IV. Several countries have already implemented Ucits IV, even before the July 2011 deadline.” Reynaud sees the main risk is one of ‘gold plating’, whereby some regulators may be tempted to implement Ucits IV only after adding new constraints in addition to the ones of the directive – for example, to the conditions for a cross-border merger.
The fact that fiscal aspects were not tackled within Ucits IV may continue to limit the extent to which the instruments can be used, says Lehmann.
“Cross-border mergers will be quite difficult to implement as long as they are treated differently from domestic mergers from a tax perspective. Nevertheless, it is much too early to judge on Ucits IV. At Allianz GI we look forward to its implementation into national law, and to the new opportunities arising from it.”