In terms of regions, Europe is seen as a more important market for future Ucits growth than Latin American pension plans or Asia, though both are thought to matter, the survey also reveals.
These and other findings were unveiled last week during an Association of the Luxembourg Funds Industry conference on alternative investment funds because – Citi’s Peter Salvage, citing the research’s findings, explained – many of those in the industry believe that the alternative space is one of the biggest future growth areas for Ucits, as funds managed according to the Undertakings for Collective Investment in Transferable Securities directives are known.
The survey findings unveiled last Wednesday were from a major Citigroup research project that will officially begin to be unveiled next month, Salvage, who is head of Alternative Investment Services EMEA for Citi Securities and Fund Services, said.
“This survey is really trying to get to the heart of what is happening in the Alternative Investment Fund Manager Directive space,” Salvage added, referring to Europe’s latest major directive aimed at its asset management industry.
“What are some of the key business [decisions] people will need to make, and how are they going about that – in terms of domicile, in terms of [choosing a] depositary, and in terms of where the growth is going to come from.”
The so-called AIFMD entered into force in July, and the global funds industry is currently gearing up to comply with it. It will govern how alternative investments are sold across the European Union.
According to the survey, which was conducted in September and October for Citi by Cerulli, the Boston-, London-, and Singapore-based research firm, 77% of the 100 people interviewed from 82 companies around the world believed pensions will be a major source of fuel driving the "next leg of growth" of Ucits funds, while 71% said the growth in alternative Ucits funds – primarily hedge funds and property funds – would also be important.
Some 60% of those surveyed thought Europe’s own markets would drive the growth of Ucits funds going forward, while roughly one third said Latin American pension plans would be key, and an equal number cited Asia’s markets.
As for the biggest threats to the Ucits funds industry, nine in 10 of those surveyed, or 91%, said they thought a proposed tax on all financial transactions taking place in the European Union would endanger the Ucits product, while 83% said regulations aimed at limiting fund managers’ compensation posed a threat.
AIFMD seen to favour large over small
Moving from the Ucits directive to the AIFMD, the respondents to the Citi/Cerulli survey, perhaps not surprisingly, said they believed the incoming alternative investment fund manager directive will favour big companies over small ones and strong ones over weak ones, with the predictable result that, as these industry players see it, there are likely to be fewer, bigger players going forward.
Salvage said the researchers found "a pretty strong response that the larger managers would do better than the smaller ones,” with some 56% saying they “strongly” agreed that larger fund managers were “better positioned” for the AIFMD world than smaller ones, and 63% “strongly disagreed” that smaller firms might be “better positioned”.
As reported, the AIFMD was drafted to help protect investors more, and to more heavily regulate alternative investment managers, in the wake of the perceived involvement of some alternative investment strategies in the 2008 financial crisis.
‘Existing mechanisms’
Another possibly unsurprising finding of the Citi research – coming as it did at a time when the controversial AIFMD regulations had just come into force – was that many of those industry executives surveyed were sceptical of the need for more regulation being brought in.
The question they were asked, Salvage said, was whether new regulations really would “bring more transparency and safety and liquidity to investors”, or whether they would add little to the protections already provided by “some of the mechanisms that are already in place, like managed accounts”.
More than eight out of 10, or 86%, thought such existing mechanisms as managed accounts would, in fact, “actually be more effective in safeguarding the investor base than some of the [new] regulations,” Salvage said.
Other findings of the Citigroup research unveiled by Salvage and his Luxembourg-based Citigroup colleague, Pervaiz Panjwani, head of Citi Securities and Fund Services, and country officer for Citi in Luxembourg:
- Asked to rate which factors they looked for in choosing a domicile in which to base one of their operations, the respondents rated the "quality of service providers" top of their list, followed, in descending order, by "the regulatory environment", "cost", "speed", "political stability" and "distribution" offerings. Least important factors were "language" and the jurisdiction's physical location.
- Institutional investors are seen as working with fewer alternative managers going forward, with 88% saying they thought the industry was moving in this direction. “We’ve seen this trend for a few years now,” Salvage said, adding that this was already making it increasingly difficult for the smaller alternative managers to survive
- With respect to Europe generally and Luxembourg specifically, Panjwani noted that 66% of those surveyed felt that Europe was preferred as a domicile for marketing AIFMD funds to Europe, as opposed to non-European jurisdictions that are expected to adhere to the AIFMD rules in order to market into the bloc. Panjwani added that this was consistent with a trend among Citigroup’s clients to relocate from the offshore space to Luxembourg, which he said had begun “a few months ago” and which he was hopeful would continue.
