Equity market neutral, macro and volatility most sought after strategies in Ucits space

Date: Wednesday, July 4, 2012
Author: Emily Perryman, HedgeWeek

Equity market neutral, macro and volatility strategies are likely to be the most popular allocations in the next six months, according to a survey by Alix Capital, the Geneva-based provider of the Ucits Alternatives Index family of indices.

The Ucits Alternative Index Trends Survey shows that at least 50 per cent of respondents for these three strategies intend to increase their allocation, with volatility the highest at 55 per cent.

Respondents are most likely to decrease their allocation to fixed income and long/short equity, with 24 per cent and 18 per cent of respondents respectively indicating allocation to these strategies will be reduced.

Equity market neutral appears to be enjoying a steady increase, with intentions to increase allocation recorded for the last 18 months.

Sixty five per cent of respondents expect a rise in Ucits hedge funds assets under management in the next six months, with only nine per cent anticipating a decrease.

Seventy per cent of all respondents believe the fund of funds model is valid in the context of Ucits.

Better regulation of fund counterparties and higher legal oversight are perceived to be the main benefits of Ucits funds of hedge funds, followed closely by the broader distribution possibilities offered by Ucits structures. Tax advantages and lower operational risk are seen as slightly less important factors.

Fifteen per cent of respondents do not believe that Ucits fund of hedge fund model is valid. When asked about drawbacks, respondents believe that the current number of single manager Ucits hedge funds is not large enough to effectively manage Ucits funds of hedge funds. The cost of Ucits fund of hedge funds compared to offshore fund of hedge funds and the limitation of strategies associated with the Ucits compliant structure were also cited as disadvantages.

From a portfolio management perspective, respondents believe that the main benefits of the Ucits fund of hedge fund structure are higher oversight of underlying funds (and the associated lower due diligence requirements) and better rebalancing opportunities.

Louis Zanolin, chief executive of Alix Capital, says: “Respondents believe the assets under management of Ucits hedge funds will continue to increase in the second half of 2012 and these results support our belief that the Ucits structure will continue to bring new opportunities and increased choice to investors looking to allocate to alternatives.”