A recent survey shows limits to the popularity of Ucits as a way to run hedge funds onshore.
Managers must appoint custodians and administrators to value QIFs and SIFs. Though no cross-border EU distribution passport comes with them, they do not face investment or borrowing limits affecting Ucits funds.
Those hedge managers who do use Ucits highlight the cross-border EU distribution passport, the ability to target Europe's retail and institutional investors, and giving European institutional investors a way of avoiding heavy capital charges that otherwise apply when allocating offshore.
Jean-Michel Loehr, chief of industry and government relations at RBC Dexia, says: "Co-domiciliation allows 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's EMEA head of investment management, added: "Clearly the wholesale shift into alternatives Ucits some had been predicting has not taken place."
London's Dalton Strategic Partnership offers both on- and offshore versions of its European equity long/short strategy under Leonard Charlton.
Magnus Spence, DSP managing partner, says DSP aimed to have structures of the fund catering to all tastes.
Its latest strategy, India long/short equities under Guarav Pant, is only offered onshore in Luxembourg, and no plans exist for offshore equivalents.
DSP is targeting 12% to 18% returns annually on half stocks' volatility, and targets funds of Ucits managers and long-biased allocators as clients.
Spence explains: "A lot of funds of Ucits funds seem to complain about bland returns, their returns have been mundane. For those running them, this fund could be an interesting way of getting higher returns in a higher risk element of portfolios. Right now our business sees greater opportunity in onshore than the offshore space."
The more general hesitation to bring offshore funds onshore could change, however, amid uncertainty over how offshore portfolios could be distributed under Europe's Alternative Investment Managers Directive, due to take full effect in EU member states in 2013.
About 40% of the combined group of managers who expect to redomicile in the EU, or already have, name 2012 as the year to open onshore.