UCITS-compliant hedge funds are continuing to grow in prominence amongst European investors. A recent Preqin study indicates that 30% of European investors have an allocation to UCITS-compliant hedge funds with a further 15% considering an allocation to these funds. There has been a considerable increase in the demand for such funds over recent years as many investors seek increased liquidity and reduced risk in their portfolios. The increased popularity of these funds in Europe is highlighted by the fact that this has been the most popular type of fund structure to emerge since the financial crisis.
The most common reason for investing in UCITS-compliant hedge funds is the increased liquidity offered with 63% of European investors surveyed naming this as a key reason for investing in such funds. Other attractive features are the fact that they are regulated vehicles, the increased transparency offered and improved risk management. In terms of liquidity, the structure provides more frequent redemption periods compared to other fund structures which allows investors to make immediate changes to their portfolios where necessary.
One firm actively investing in UCITS-compliant hedge funds is SwissWealth Management which recently launched a UCITS fund of hedge funds. The CB-Accent Lux Alternative Alpha Evolution fund invests in a portfolio of 25-35 UCITS IV-compliant funds across a diverse range of hedge fund strategies.
Looking forward, it is expected that UCITS funds will continue to attract investors that place a high emphasis on liquidity and transparency when investing in hedge funds. The recent introduction of UCITS IV is attracting a new institutional audience to funds structured under these European Union directives. Despite the rise in popularity of UCITS structures, more traditional fund structures still dominate portfolios and it is unlikely this will change in the foreseeable future as some investors still have concerns over investing in the structure. Overall it is expected that UCITS-compliant hedge funds will continue to be popular within Europe and these funds are also growing in popularity with investors in other regions.