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The limitations of Ucits funds

Fund buyers should consider alternative investment funds to take advantage of illiquid assets that the Ucits structure cannot support, according to Schroders.

As the low interest rate environment continues and the global economy comes out of a 30-year fixed income bull market, fund selectors should look beyond the Ucits structure to seek alternative and illiquid asset classes, according to a report by FSA sister publication Expert Investor.

Speaking to Expert Investor at the Association of the Luxembourg Fund Industry (Alfi) Global Distribution Conference in Luxembourg last Tuesday, Sheila Nicoll, Schroders Investment Management’s head of public policy, said that as investor demands – both institutional and retail – were becoming more sophisticated, selectors need to move into new asset classes.

“One of the challenges with Ucits is that they are based on public securities and open-ended liquidity and daily liquidity, and as fund selectors and their underlying clients seek to move into more private asset classes and perhaps more illiquid asset classes, there will be questions around the extent to which the Ucits structure can meet that,” she said.

“I think fund selectors may gain comfort from the Ucits brand but it does have limitations and they might need to look more widely at some other regulated products.”

Pointing to a panel discussion at the conference detailing the blurring of lines between traditional and alternative investments, Nicoll said there needed to be a recalibration of how investors thought of Ucits and alternative investment funds (AIFs).

“I don’t think that necessarily means expanding the Ucits brand to cover private assets, but I think it’s recognising that there is room for everything. Ucits doesn’t have to be the answer for everything,” she said.

“Ucits is a trusted brand that has an important role to play but asset managers have other products such as infrastructure and private assets.”

Speaking on the panel on the future of cross-border fund distribution, Bluebay Asset Management chief executive, Erich Gerth, said there was a convergence between alternative and traditional asset managers.

Gerth noted that as the global economy was coming out of a 30-year bull market in fixed income along with the low interest rates, investors needed to take a closer look at alternative investments as they were more dynamic and took advantage of liquidity.

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