Asset Allocation

UCITS Hedge Funds’ Rise Out-Paced by ‘Traditional’

<i>Hedge funds in UCITS wrappers are increasing their assets, but not quickly enough to be contenders against their ‘traditional’ cousins.</i>
Reported by Featured Author

(April 30, 2012)  —  Assets in UCITS-regulated hedge funds have quadrupled in the past three years, but the model lags less strongly governed funds run by large firms as institutional investors opt for ‘traditional’ methods.

Since March 2009, assets under management have grown from €€32 billion to €€120 billion at the end of the first quarter this year, according to Alix Capital, a Switzerland-based company that tracks alternative UCITS assets and performance.

Alix Capital said 72% of this growth was due to investor inflow, with the remaining growth coming from performance.

Louis Zanolin, Chief Executive of Alix Capital, said: ““With the exception of the United Kingdom, the vast majority of the money invested in UCITS hedge funds in Europe is coming from institutional investors.”

A relatively high level of money lodged in these funds by retail investors in the UK is due to a high number if independent financial advisers (IFA) who offer insight on investment, Zanolin said.

“”It difficult to give the portion of retail money but it is probably less than a third. In the other countries this portion is much lower,”” he added.

While managers favoured long/short equity strategies, investors preferred fixed income. The largest number of new fund launches over the past four years followed the long/short strategy – in the first quarter of the year, some 28.1% of funds were dedicated to long/short. The largest increase in the level of assets was in fixed income, in which 32.3% of assets were held in the first quarter of the year.

However, compared to ‘traditional’ hedge funds, which saw global new capital inflows of $16 billion in the first quarter of the year, this growth is relatively small.

Asset managers began launching UCITS funds running hedge fund strategies in a significant way in 2009 after the financial crisis and revelation of a series of frauds in the sector.

The UCITS wrapper ensures liquidity and transparency that investors were demanding. However, last month a survey by SEI’s Investment Manager Services and Greenwich Associates showed only 15% of institutional investors were planning to direct part of their current hedge fund allocations to a registered product such as a mutual fund or UCITS vehicle.

Only one institution with assets greater than $5 billion reported plans to shift hedge fund assets to registered products.

Larger fund managers gather the most assets in both the UCITS and ‘traditional’ alternative fund space.

Alix Capital said three managers looked after more than 24% of total assets in the industry.

Data this week from middle and back office specialist PerTrac said the largest funds were gathering – and keeping hold of – the largest percentage of assets.

Pertrac said: “”Single-manager hedge funds with greater than $1 billion under management account for a mere 3.9% of reporting funds, but they control about 60% of the total single-manager hedge fund assets.”

Jed Alpert, Managing Director of Global Marketing at PerTrac said: “”The flight to size continues for hedge fund investors. Investors continue to view larger hedge funds as a better, safer bet even though industry data, including our own, indicates that smaller funds have generally outperformed larger ones.””