Better regulation of fund counterparties and higher legal oversight were perceived to be the main benefits of Ucits funds of hedge funds, followed closely by the broader distribution possibilities offered by the fund structure. Tax advantages and lower operational risk are seen as slightly less important factors.
However, 15% of respondents said they do not believe that Ucits fund of hedge fund model is valid, the main concern being that the current number of single manager hedge funds is not large enough to effectively manage 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 said 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.
Alix Capital’s poll reached out to 60 firms, including fund managers, banks, insurers, pensions funds, high net worth individuals and service providers.
Louis Zanolin, CEO of Alix Capital, said: “Ucits funds of hedge funds are a natural evolution of the development of the single UCITS hedge funds market. Based on Alix Capital’s figures, the number of fund of Ucits hedge funds has grown significantly in recent years, with an average annual growth of 64% since 2008. That said, assets under management remain low for many of these funds, with 41% managing less than €20m.”
Alix Capital runs the Ucits Alternative Index, a family of 19 different benchmarks tracking the returns of both global and strategy specific funds.