GLOBAL - Pension schemes are increasingly demanding that funds of hedge funds be located onshore as they are unable to invest in traditional unregulated products, managers have found.
Reacting to such institutional pressure, multi-managers have followed single fund providers including Marshall Wace, Gartmore, RWC Partners and Majedie Asset Management, which have all either abandoned offshore entirely or committed to onshore and Ucits-compliant variants of each offshore product.
Fund of hedge funds provider Permal, one of Europe's largest with $20bn under management, is among the latest to take pension cash into onshore vehicles.
Most of the $80m Permal has raised for its Luxembourg-domiciled, China-focused product since launching it in April has come from international public sector pension funds.
Permal senior executive officer Omar Kodmani said the product has no offshore mirror and it was not necessary to take the traditional path of opening one.
"We wanted as broad an appeal as possible. It was with an onshore product that we found we could get that," Kodmani said.
He also expects more "onshoring" in future. "Fund products we launch in future will more than likely be EU-domiciled on the basis that they can appeal to both onshore and offshore investors."
In May, Permal launched a Luxembourg version of its BVI fund of global macro hedge funds as a result of requests from pension funds and other investors in the Benelux region for Permal to offer a regulated product because they could not buy offshore vehicles.
Kodmani said provisions in the EU's Alternative Investment Fund Managers directive, which propose barring non-EU investors from European managers' offshore funds, were not directly responsible for Permal deciding to seek Luxembourg and Hong Kong registration for its China product.
However, he adds: "There is no question the AIFM will lead to a greater focus on EU vehicles. We have experience in launching Luxembourg vehicles, and doing so has not disadvantaged us when compared to our offshore, Caribbean funds."
Funds of funds now have about $100bn in Ucits-compliant hedge funds to select from, with 125 regulated long/short products starting up this year by 30 May, according to data analysts Eurekahedge.
Chief executive Alexander Mearns said at the same time, hedge funds governed by the EU regulations accounted for 7% of all hedge fund assets, and attracted 20% of inflows to the industry.
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