UCITS spur European hedge fund asset growth-survey

Date: Wednesday, September 8, 2010
Author: Martin de Sa'Pinto, Reuters

UCITS-compliant hedge fund assets up at several firms * BlackRock, Dexia, M&G among biggest UCITS asset gainers

Brevan Howard, Man Group hold on to top spots

Assets in Europe's top 50 hedge fund managers rose by 11 percent to $300 billion between January 2009 and June 2010, helped by a surge of inflows into EU-regulated funds, data from a fund service provider showed.

Data published Tuesday by Newedge showed EU-regulated UCITS funds have gained traction since the financial crisis, as investors have sought safe ways to invest in hedge funds.

During the crisis, some managers limited investor access to their money or blocked withdrawals altogether to avoid being forced to sell assets at low prices.

To allay investor concerns that this could happen again, some managers launching UCITS III funds, which impose strict liquidity requirements, clear asset pricing, and leverage limits.

Dexia's UCITS funds helped it jump from 31st place in the 2009 rankings to 13th this year, while M&G investments also moved up a few places on the back of a recently-launched regulated fund.

BlackRock (BLK.N), which manages more than $3 trillion, saw hedge fund assets leap more than 27 percent to $21.7 billion, with its UCITS-compliant BlackRock UK Absolute Alpha proving particularly popular among European clients. It is among the world's largest 'Newcits', with around $3 billion.

Fortunes varied among the top managers, with assets in top-placed Brevan Howard surging almost 24 percent to $31.5 billion, while at local rival Man Group (EMG.L), $1 billion went out the door.

Some experts had said the restrictions under UCITS would stifle returns, while others had said it was a fair price to pay.

"UCITS hedge funds will give up a portion of their performance because they have to be more liquid. But investors would also be wise to base their analysis on liquidity, risk and return rather than just risk-return to gauge performance," said Ludovic Ferras at Dexia's (DEXI.BR) asset management arm.

Liquid hedge fund strategies can now be structured into funds that offer sufficient protection to retail investors, helping to swell hedge fund assets said Ferras, who heads Dexia's Alternative and Structured Investments team.

New regulations could also push institutional investors towards these so-called Newcits.

"UCITS funds can provide a clearer answer for insurance companies in the context of Solvency II rules," Ferras said.