UCITS - Undertakings for Collective Investment in Transferable Securities Directives
What can a UCITS product invest in?
Flexibility of the UCITS product widely underestimated
EU product directive allows for investment in transferable securities, money market instruments, units of other UCITS funds, deposits and financial derivative instruments.
March 2007 the Eligible Assets Directive further expanded the scope of what a UCITS could invest into.
Promotes diversification by requiring no more than 5% or 10% of a UCITS total net assets can be invested in transferable securities issued by a single counter party.
Aggregate limitation of 40% of a UCITS Total Net Assets on holdings of greater than 5% of single issuers.
Can invest 100% in other UCITS or scheme that has a comparable level of regulation 100% in eligible financial derivative instruments.
Commodities and non-financial indices are not permissible.
Can invest in credit derivatives such as credit default swaps 130/30 allows long/short strategy as long as overall global exposure does not exceed 100%.
Risk management process which enable it to manage and monitor overall risk of portfolio.
Borrowing is allowed on a temporary basis up to 10%.
Timelines and cost of establishment
Speed to market of the UCITS product
Investment manager and promoter need to be authorized by the Financial regulator. This generally takes about 4-6 weeks depending on the location of the investment manager and the regulatory regime under which they are supervised. In parallel the fund can be incorporated along with the prospectus and other fund documentation including the business plan as in most cases the fund would be a self managed fund from a regulatory perspective .
This should take a further 4- 6weeks. Incorporation of the fund, drafting of all legal documentation relating to the fund and taking the investment manager through the approval process – approx €30-60k. In Ireland you must engage a local trustee/custodian along with local administrator. UCITS IV proposes a simplification of the UCITS passport scheme allowing fund to be sold on a cross border basis within 10 days
Domiciles introduced legislation to cater for swift change
- Legislation across Ireland ,Luxembourg and Malta allows for efficient redomiciliation of a legal fund entity from one jurisdiction to another
- Dual process involving approval of local regulator to which fund is being redomiciled and local companies registration office
- Legal personality of the fund is maintained – No need for subscription or redemption of investors – no need for liquidation of portfolio – track record of fund maintained
- Efficient legal and regulatory portal to re-domicile funds from offshore to onshore jurisdictions to satisfy investors needs for more regulated products