This analysis was based off 230 funds. Since then we have continued to add funds to the database, which now exceeds 250 funds.
First off, we are able to reveal the most popular domicile for UCITS hedge funds is Luxembourg, with a substantial lead over Ireland. We know from our sources that there are many UCITS hedge funds awaiting regulatory approval in Luxembourg, and that this is slowing down the launch process for many managers. But we also know that many continental European investors prefer Luxembourg funds to Dublin ones. More detailed research remains to be done on the choice of jurisdiction by both individual managers and the platforms themselves.
It is also worth noting that there are a sizeable number of UCITS hedge funds being launched with domestic domiciles – i.e. UK, France, and Germany. It does not seem that managers are being limited to a Luxembourg or Dublin choice.
We were also impressed with the liquidity breakdown, with over 76% of the funds tracked offering daily liquidity, and a further 21% offering weekly liquidity. Only three funds so far offer fortnightly. It seems as if most managers launching UCITS hedge funds feel confident that they can offer the investor community superior liquidity terms. Speaking to fund managers for our ongoing series of UCITS Hedge Fund Snapshots, we have found portfolio managers more than confident about meeting the required daily liquidity.
Long/short equity is predictably the most popular strategy for the onshore universe, very closely followed by relative value. Macro discretionary and macro systematic combined come to 28%, with macro discretionary funds comprising the larger share of that. We expect this trend to continue. Although some platforms and structuring specialists claim to be able to replicate the performance of over 95% of existing offshore hedge fund strategies in a UCITS wrapper, the investor community remains sceptical of some of the more highly structured variants on the market.
The UCITS Hedge Database also tracks where funds invest, both in terms of geographic region and also which underlying assets the fund manager may invest in. A sizeable proportion of the universe has a global mandate, not surprisingly, given the number of macro funds available. Over a quarter of the funds tracked have some kind of European regional mandate. It is interesting to note that North America is under-represented, at less than 4% of funds, and even Asia seems a little light. Whether this is because there is a natural preference for vehicles investing in Europe on the part of the existing European investor community is a question we will be putting over the coming months, but it seems that the choices available for investors trying to achieve geographical diversification are limited, unless they are happy with globally-mandated funds.
The UCITS Hedge Database tracks the historical assets under management of the funds we follow from inception point. This has allowed us to build a picture of the growth of the UCITS hedge fund universe, at least those funds registered already, and which meet our screening criteria.
Although we do not consider our universe to be complete, we do feel it now covers between 60-70% of the UCITS hedge fund universe and can provide a good indication of the AUM growth trend.
A reader can probably accurately extrapolate the true size of the universe from this. Taking the beginning of 2009 as a starting point, we can see a solid growth trend from August last year, followed by a second flat period beginning in May 2010, and then further, more aggressive growth in the latter part of 2010.
The slow period this summer can be partly attributed to losses sustained by existing funds, particularly funds in the macro systematic strategy, off-set by new funds being launched into the universe. We note that July and August were particularly quiet for new fund launches, with a sudden spate of new vehicles appearing in September and October.
Overall, we are seeing strong growth in asset raising by UCITS hedge fund managers in the second half of the year, particularly as awareness of the option grows in the investor community, and more investors return to the hedge fund market seeking a more transparent and regulated format for their alternative investment portfolios.
We track the physical location of the portfolio management team, allowing us to form a picture of where the investment managers or advisors responsible for these vehicles are located. This roughly matches the expected location profile of the European hedge fund community, with a large component located in London, and smaller numbers in other locations. Paris is a major centre for the UCITS hedge fund community, and Germany seems to be growing in importance.
We predict that we will see more onshore German funds being launched by locally-based portfolio management teams to cater to the appetite for alternative investments in Central Europe. We also predict that the New York component of Fig.6 will grow over the next 12 months as more US fund managers are apprised of the UCITS possibilities.
Asia remains small for the time being. We are not as confident of the uptake by Asia-based managers, but still expect the Asian hedge fund community will increase its share of the UCITS space, albeit less aggressively than the Americans, over the next year.
The Rest of Europe bracket in this context includes the many funds being run by firms in other European jurisdictions, a growing constituency which includes managers based in Portugal, Slovakia and Spain amongst others.
