UCITS are internationally recognized investment products and can be distributed across the globe with an implemented procedure known as passporting. Thus many UCITS funds are not only registered in EU Member States, but also in non-European countries such as Switzerland, Hong Kong or Peru. A further aim of the UCITS regulation is the simplification of provided investor’s information.
Advantages for Investment Managers:
The cost effective passporting process allows for cross-border distribution of UCITS throughout the EU Member States. The UCITS passport endows investment funds with a significant number of cross-border marketing and distribution rights and offers investment managers at the same time a greater access to investors’ capital. As opposed to offshore investment vehicles without passporting rights, UCITS do not need to be registered separately in every EU Member State and thus guarantee a simplified access to capital.
The fact that UCITS are recognised and regulated investment products following a set of quality standards makes them especially attractive to private investors. But also institutional investors limited through internal investment restrictions, such as pension funds, may be attracted by the regulated UCITS solution.
Cross-border distribution also affects the merger process of UCITS. There are also possible exemptions to the investment diversification limits on single investment vehicles allowing for UCITS to be fully invested in one other UCITS fund and thus allowing for the creation of a master-feeder structure.
Investment Opportunities And Strategies
The UCITS framework allows investment managers to use certain – but not all – sophisticated alternative investment strategies. Nevertheless, some investment managers may be deterred by UCITS requirements and will probably need to verify if their strategies are UCITS compatible.
A wide range of different investment strategies can be implemented through UCITS without unduly prejudicing investment returns, including the use of leverage – although in a controlled manner. The following investment strategies or fund types can be implemented with respect to UCITS regulations:
- Long Only Funds;
- Long Only Index Replicating Funds;
- Money Market Funds;
- Long/Short Equity;
- Index Tracking Funds;
- Fund of Funds;
- Specific Commodity Trading Funds.