Hedge Funds

Executives sound warning on hedge fund Ucits boom

MONACO (Reuters) - Investors clamouring for Europe-based “hedge fund lite” portfolios in the wake of the credit crisis could still be cut off from their cash in a crisis, hedge fund executives have warned.

Steve Friedman, Managing Partner of EOS Partners, attends the GAIM International (Global Alternative Investment Management) hedge fund conference in Monaco, June 15, 2010. REUTERS/Sebastien Nogier

Some commentators fear these portfolios, designed to meet the EU’s Ucits rules allowing funds to be widely sold, are not suited to all hedge fund types, and may hit problems if markets dry up and many investors want to pull out at the same time.

“It’s nonsense to create these liquid vehicles. It’s much better to realise that hedge funds are an illiquid asset class,” said Gerlof De Vrij, managing director of absolute return strategies at APG, which manages 240 billion euros (200 billion pounds) in assets.

“We’re not interested in Ucits funds. The focus on liquidity is something I don’t understand.”

Research last month showed investors have poured almost $200 billion (136 billion pounds) into alternative and absolute return Ucits funds -- often dubbed ‘Newcits’ by the industry -- which tend to give clients quicker access to money as well as greater transparency.

And a full day of the GAIM International hedge fund conference here was devoted to Ucits, with sessions packed with attendees.

In 2008 many investors were barred from pulling their cash out of hedge funds because the market for many of the funds’ underlying investments had dried up.

However, critics of Ucits funds say that these funds can still bar investor exits and may not be the right vehicle for all investors scarred by the credit crisis.

In March, the president of the European mainstream fund association Efama, Jean-Baptiste de Franssu, told Reuters he feared Europe was heading for a mis-selling scandal as the Newcits boom took hold.

“About 90 percent of strategies are fine (for Ucits), but there’s always going to be the 10 percent who push the boundaries,” Olwyn Alexander, head of Irish alternatives practice at PricewaterhouseCoopers, told Reuters.

“There are some strategies where there’s the question of how they’re going to cope if there’s a crisis. Because of the brand Ucits has, is there going to be a blow-up?”

High-profile hedge fund firms such as Man Group EMG.L and GLG Partners GLG.N and Brevan Howard have launched Ucits versions of their portfolios. Man chief executive Peter Clarke agrees Ucits is not a cure-all.

“Ucits is an interesting place for certain hedge fund strategies, but by no means all of them,” he said.

Strategic Investments Group said this week that it had raised $250 million for a Ucits III fund, managed by Permal Group, that will invest with a range of hedge fund managers.

And hedge fund firm IKOS is launching a currency Ucits fund this month on Deutsche Bank’s platform, the firm’s chief executive Elena Ambrosiadou told Reuters on the sidelines of the conference.

"It's very difficult, if everyone seeks daily liquidity, to invest in hedge funds properly," said Steve Friedman, managing partner of EOS Partners. (Additional reporting by Martin de Sa'Pinto; Editing by David Cowell) (To read the Reuters Funds Blog click on; for the Global Investing Blog clickhere)