GLOBAL - Fewer than one in 10 institutional investors has invested in Ucits-compliant hedge funds, but 35% could within 12 months, in what could prove a major boost for the US$35bn regulated long/short sector, research by Preqin revealed.
The firm surveyed 50 investors from Europe and North America at the end of 2009, including public and private pension funds, other institutional investors and asset managers.
However, further interviews it held with 60 fund managers from 13 countries suggested supply of Ucits funds, from North American managers at least, might not meet demand.
None of the North American managers offers Ucits products - compared to half their European rivals - and only five plan to do so. Only two offer them now.
The Ucits guidelines were born in the EU, but spread to Asia and Latin America, too, as an imprimatur for managers of adherence to higher regulatory standards than for their hedge funds.
The paucity of North American managers considering adopting them is an implicit rebuke to the Ucits framework.
Kate Hollis, global head of fixed income and alternatives fund research at Standard & Poor's, said not all hedge fund strategies fitted the Ucits format.
She added this was largely because hedge funds' typical 135-day redemption cycle was far longer than fortnightly withdrawals for Ucits.
About 44% of managers said Ucits did not suit their strategy.
About one quarter of institutional investors already investing in Ucits hedge funds, or considering it, cited better liquidity terms as the reason for their interest. About 40% cited greater transparency.
In separate Ucits research, Georg Reutter of London-based fund marketers Kepler Partners found hedge fund managers did better running long/short Ucits funds than traditional managers did.
In the 12 months to February 26, the difference in returns was 5.2% - or 18.2% versus 13% - on similar volatility.
Reutter said: "There is still a significant bridge to gap for hedge fund firms wanting to establish themselves in this space. Managers who are destined to perform best on a risk-adjusted basis are those that have a hedge fund background, with a track record in a similar offshore fund."
But Reutter added many institutions remained unsure of whether to include Ucits funds in their allocation to alternatives, or to the asset class in which the Ucits product invests.
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