UCITS Evolution: Plain Vanilla to Alternatives

Author:Mr Derbhil O'Riordan
Profession:Dillon Eustace
 
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Derbhil O'Riordan of Dillon Eustace looks at the history of the Ucits regime, and its expanding reach as an EU investment product.

Undertakings for Collective Investment in Transferable Securities, commonly referred to as Ucits, are collective investment schemes, established and authorised under a harmonised European Union (EU) legal framework; under which a Ucits fund established and authorised in one EU member state can be sold cross-border into other EU member states without a requirement for additional authorisation.

Originally introduced over twenty years ago, Ucits have become the gold standard EU investment fund product, recognised not only by the European financial services community but also internationally, with many jurisdictions from Asia to the Americas accepting Ucits as suitable for retail sale into their domestic markets. While they are sold across the full spectrum of investor types, Ucits have been designed principally for the retail market as open-ended diversified, liquid products with their parameters, permitted asset classes and investment and borrowing restrictions enshrined in EU law.

Evolution

The original 1985 Ucits Directive set down the legal forms which Ucits could take, their permitted investment and borrowing rules, liquidity requirements, prospectus disclosure rules, rules relating to reporting and to the role and duties of Ucits custodians/ depositaries and their management companies.

Importantly, however, Ucits is not a product which has stood still, rather it continues to evolve, with a significant broadening of permitted asset classes and more robust governance requirements being introduced in 2002 and clarified in 2007 (referred to generally as 'Ucits III'). More recently, a series of additional changes have been implemented under the Ucits IV Directive in order to further simplify the European passport process, introduce master/feeder type structures, create a framework for cross-border fund mergers, replace the Simplified Prospectus and introduce further measures in relation to the Management Company Passport.

Given the increased investment opportunities granted under Ucits III and the subsequent clarification of the terms 'transferable securities' and 'money market instruments', Ucits provide for a very broad spectrum of fund types and exposures, from relatively plain vanilla equity and bond products through to Ucits taking exposures to hedge fund and commodities indices, with fund of funds, money market and cash...

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