What’s driving the UCITS phenomenon: Part 1

By Colin Keane

Undertakings for Collective Investment in Transferable Securities(UCITS) have dominated the European funds market for more than two decades; assets under management equal more than €8.3 trillion, representing 60% of the European market (according to EFAMA Sept, 2016). Highly regulated, transparent, and liquid are synonymous with UCITS. So in an ever-changing market where investors seek absolute risk-adjusted returns, why are UCITS moving away from traditional strategies towards alternatives? And what opportunities does this present?   

The UCITS market is immense. In fact, it is two-and-a-half times the size of the global hedge fund market, according to Barclay’s Hedge Fund index v EFAMA.

The 2014 introduction of the Alternatives in Financial Markets Directive (AIFMD) brought about a lot of uncertainty in the European alternative investment market. It was no surprise that 2015 was a stellar year for UCITS, with assets under management growing by almost €1 trillion, from €7.2 trillion to €8.16 trillion. The 2015 increase in assets was double that of year-on-year increases from previous years.

Institutional investors, such as pension funds and insurance companies, continue to drive the inflows, with many having constraints on investing into hedge funds. UCITS are distributed across Asia, the US, and Latin America, and continue to be seen as the product of choice in Europe.

The growth of the ‘alternative UCITS’ sector has been well documented, with 29% growth in 2014 and 25% growth in 2015. In 2016, assets under management (AUM) in alternative UCITS were estimated to have reached €400bn according to LuxHedge; but in context of the overall UCITS AUM, this accounts for just 5% of the total market.

To further understand how alternatives have changed the UCITS market, who’s driving the change, and the opportunities it presents, watch for “What’s Driving the UCITS Phenomenon: Part 2”.

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