Collective Investment In Transferable Securities Research Articles

The Revised UCITS Directive (UCITS IV): A Missed Chance for Creating Common Rules on the Taxation of UCITS

The taxation of domestic and foreign Undertaking for Collective Investment in Transferable Securities (UCITS) in the Member States differs substantially. These differences in taxation distort the competition between UCITS. The aim of the UCITS Directive therefore could not be fully realized. In this contribution, the desirability of common (harmonized) European Union (EU) rules is reviewed. According to the author, the Member States can eventually not escape from including a chapter on the taxation of UCITS in the Directive, unless they settle for the current incomplete market in UCITS.

Harmonized regulatory standards, international distribution of investment funds and the recent financial crisis

In this paper, we consider for the first time the impact of fund regulation on the international distribution of investment funds. We study the 2001 Undertakings for Collective Investment in Transferable Securities (UCITS) Directive of the European Union, which was put in place to mitigate fraud and promote investor confidence throughout Europe. We examine the impact of UCITS on international distributions of European investment funds over the 2002–2009 period. We show that the UCITS regulatory structure has significantly facilitated cross-border fund distributions, albeit UCITS has had less success in facilitating distributions among smaller fund promoters. Also, UCITS funds, especially UCITS equity funds, have lost some of their advantage in terms of cross-border distribution during the period of the recent financial crisis. Further, we show there has been a growing interest in UCITS over time outside Europe, notably in Asia.

Exploring the influence of regulation on the innovation process

The influence of regulation on the innovation process in the financial services industry is at present an area that is understudied. The Grand-Duchy of Luxembourg provides an interesting case study because it was the first to quickly and effectively transpose a major EU directive for financial services, namely the Undertakings for Collective Investment in Transferable Securities (UCITS) directive. Additionally, no prior study was done on the mechanisms which facilitated a faster innovation process in Luxembourg’s financial services industry. The interplay between the government, professional associations and private actors was studied. A positive influence of this interplay on the implementation of the UCITS directive was found, offering a better understanding of the mechanism of externally induced innovation. The obtained results provide interesting new venues of research and indicate the importance of reputation and the existing mechanisms of relational embeddedness to enhance the innovation process in Luxembourg’s financial services industry.

An Empirical Analysis of U.S. Dollar-Trading Newcits

The present article uses a sample of 66 U.S. dollar-trading undertakings for collective investment in transferable securities (UCITS) to find that the risk-adjusted performance of some strategies (i.e., equity long-biased, FOF, fixed income and sector specific) outperformed the corresponding traditional hedge fund indices over the January 2006 to March 2010 period. However, with the exception of the fixed-income strategy, all other strategies produced a volatility that was higher than that of the index. The funds of funds (FOF) classification had a risk similar to that of the index. More worryingly, during the crisis it appears that some strategies (i.e., emerging markets and equity long/short) delivered a lower risk-adjusted performance than that of their benchmarks. Further evidence shows that sector-specific strategies produced stronger risk-adjusted returns than their benchmarks albeit at a higher cost of volatility. Overall, the fixed income and FOF newcits delivered superior risk-adjusted performance at a lower or comparable risk to that of similar traditional hedge funds.

UCITS IV nuts and bolts: What to expect under the new regulatory regime

This paper focuses on the upcoming changes to Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. It covers in detail each of the key modifications introduced by UCITS IV. These include: the Key Investor Information Document, the full Management Company Passport, the new notification procedure, the Master–Feeder structure and Fund Mergers. The approach of this paper is to take each of the key modifications and cover in detail the impact it will have on asset managers.

An Empirical Analysis of US Dollar Trading Newcits

The present paper uses a sample of 66 US Dollar-trading Undertakings for Collective Investment in Transferable Securities (UCITS or sometimes-called Newcits) to find that the risk-adjusted performance of some strategies (i.e., Equity Long-biased, FOF, Fixed Income and Sector specific) outperformed the corresponding traditional hedge fund indices over the January 2006 - March 2010 period. However, with the exception of the Fixed Income strategy all other strategies produced a volatility that was higher than that of the corresponding index. The Funds of Funds (abbreviated FOF) classification had a risk similar to that of the corresponding index. More worryingly, during the crisis it appears that some strategies (i.e., Emerging Markets and Equity Long/Short) delivered a lower risk-adjusted performance than that of their benchmarks. Further evidence shows that Sector specific strategies produced stronger risk-adjusted returns than their benchmarks albeit at a higher cost of volatility. Overall, the Fixed Income and FOF Newcits delivered superior risk-adjusted performance at a lower or comparable risk to that of similar traditional hedge funds.

Cross-border fund distribution operations: Making investment funds easily accessible to global investors — A wake up call

This paper looks at the disappointing progress made in terms of processing efficiencies in the cross-border funds industry despite more than a decade of heavy investment in this field. It aims to identify the main reasons why so little progress has been made over these years, why so many Undertakings for Collective Investment in Transferable Securities (UCITS) funds’ investors and distributors have not embraced the automation solutions that they were offered and what the risks for the UCITS industry could be if it does not improve the way UCITS funds are accessed by their global and diverse investor base. The paper aims to challenge the way the industry has tackled this problem until now and proposes new options and ways to solve the automation challenge faced by the industry.

KISS, but tell all: short-form disclosure for retail investors

There seems to be a problem in European retail securities markets: investors say they cannot understand what they are being offered, particularly when the securities in question are packaged products, such as structured notes or securitized deposits (which those involved in the debate have called ‘packaged retail investment products’ or PRIPs). The solution that is being put forward by the European Commission and others appears relatively straightforward—tell investors all that they need to take their investment decision, but do so in a shorter document (some say, no more than two sides of A4-sized paper), in plain language. ‘Keep it short and simple’ (KISS), to use the acronym favoured by many in the discussions that have taken place over the last two years, but tell all. The current title for this short disclosure document is ‘Key Information Document’ (KID). Short form disclosure is not, of course, a new concept. It has roots in several pieces of European legislation, including the Prospectus Directive,1 which requires a short summary document for retail products, and the regime that regulates many types of collective investments (the Undertakings for Collective Investment in Transferable Securities—UCITS2 regime), which requires a simplified prospectus to be provided to retail investors prior to contract. What is new, however, is the intention to harmonize these different forms of simplified disclosure, so that retail investors in UCITS and certain types of other products receive the same disclosure whatever legal form the investment may take. From a consumer protection viewpoint, this appears very sensible, given that it is possible to offer to an investor several products that are commercially identical, yet entirely different in legal structure. In other words, a UCITS product may be rewritten as a structured note; but the investor should be given the same disclosure for both products.

Risk management challenges in UCITS III funds

With the Circular 07/308, the Commission for the Supervision of the Financial Sector (CSSF) aims to provide undertakings for collective investment in transferable securities (UCITS) with rules of conduct to be followed at the time of the implementation of their risk management structure, and with rules for the coverage and daily valuation of over-the-counter (OTC) derivatives. A sound risk management process requires active involvement of the conducting officers and the board of directors of the UCITS, or of its management company, and the Circular defines the roles and responsibilities of these persons. The effectiveness of the risk management process depends on the existence of a proper risk management framework, including: risk governance; risk assessment; quantification and aggregation; monitoring and reporting; and control optimisation.This paper describes how to implement such an efficient risk management framework. It provides a number of items for consideration by risk officers, conducting officers and directors for each phase of the risk management framework, and enables them either to implement their framework properly or to challenge their existing one.

Venture Capital Funding for Biotech Pharmaceutical Companies in an Integrated Financial Services Market: Regulatory Diversity within the EC

Biotechnology is one of the key emerging technologies and exemplifies the major problems of innovative industrial activity in Europe. Europe lags behind the US in most indicators of economic performance in biotechnology, one major problem being the availability of venture capital. Access to finance proves crucial for an optimal economic performance of biotech firms. However, information asymmetries between new biotech firms and potential investors lead to financing constraints in debt and equity markets. This is where venture capital funds have to overcome problems that markets fail to solve. As far as the European approach to financing small and medium-sized enterprises in the biotechnology field is concerned, attempts are illustrated to mimic allocative effects of capital markets in support of venture capital in Europe. Strategies of down-side protection, upside leverage, and support for the fund's operating costs on the basis of various programs, such as the Innovation and Technology Equity Capital (I-Tec) scheme, SOFARIS in France, and Beteiligungskapital fur Technologieunternehmen (BTU) in Germany are discussed, their weakness being that they simply replace the allocative effects of capital markets by lowering the cost of capital, instead of implementing market mechanisms. In contrast, a different approach is taken in the framework of the Risk Capital Action Plan initiated by the special Lisbon European Council in March 2000, aiming at the creation of Europe-wide integrated capital markets. It is shown how an internal market for risk capital presupposes undistorted competition between offerees for risk capital. Therefore, the single passport for issuers to facilitate companies raising cross-border capital as a means to implement such a system of undistorted competition on the basis of Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) seems to lay the basis for such competition. This holds in particular true after the latest amendment of this directive, including management companies in its framework of the single passport. At the same time, a line has to be drawn between the necessary Europe-wide harmonization in the field of investor protection, such as disclosure rules, ensued by the principle of mutual recognition for financial service providers, and interjurisdictional diversity in the field of company laws. This line-drawing problem can be paralleled to a certain degree to the development of the US securities regulation arising from the promoter problem under English law in the late nineteenth century. Overall, harmonization should only go as far as the economic policy agreed upon by the Member States to constitute an internal market reaches. This policy might at times be corrected by market forces imposing more stringent disclosure standards. Only under such conditions can Europe-wide access to capital markets, be ensured, being complemented by interjurisdictional diversity in the provision of company laws. In sum, only on the basis of this regulatory interplay can innovation as exemplified by biotech pharmaceutical companies take hold.

Venture Capital Funding for Biotech Pharmaceutical Companies in an Integrated Financial Services Market: Regulatory Diversity within the EC

Biotechnology is one of the key emerging technologies and exemplifies the major problems of innovative industrial activity in Europe. Europe lags behind the US in most indicators of economic performance in biotechnology, one major problem being the availability of venture capital. Access to finance proves crucial for an optimal economic performance of biotech firms. However, information asymmetries between new biotech firms and potential investors lead to financing constraints in debt and equity markets. This is where venture capital funds have to overcome problems that markets fail to solve. As far as the European approach to financing small and medium-sized enterprises in the biotechnology field is concerned, attempts are illustrated to mimic allocative effects of capital markets in support of venture capital in Europe. Strategies of down-side protection, upside leverage, and support for the fund's operating costs on the basis of various programs, such as the Innovation and Technology Equity Capital (I-Tec) scheme, SOFARIS in France, and Beteiligungskapital fur Technologieunternehmen (BTU) in Germany are discussed, their weakness being that they simply replace the allocative effects of capital markets by lowering the cost of capital, instead of implementing market mechanisms. In contrast, a different approach is taken in the framework of the Risk Capital Action Plan initiated by the special Lisbon European Council in March 2000, aiming at the creation of Europe-wide integrated capital markets. It is shown how an internal market for risk capital presupposes undistorted competition between offerees for risk capital. Therefore, the "single passport" for issuers to facilitate companies raising cross-border capital as a means to implement such a system of undistorted competition on the basis of Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) seems to lay the basis for such competition. This holds in particular true after the latest amendment of this directive, including management companies in its framework of the "single passport". At the same time, a line has to be drawn between the necessary Europe-wide harmonization in the field of investor protection, such as disclosure rules, ensued by the principle of mutual recognition for financial service providers, and interjurisdictional diversity in the field of company laws. This line-drawing problem can be paralleled to a certain degree to the development of the US securities regulation arising from the promoter problem under English law in the late nineteenth century. Overall, harmonization should only go as far as the economic policy agreed upon by the Member States to constitute an internal market reaches. This policy might at times be corrected by market forces imposing more stringent disclosure standards. Only under such conditions can Europe-wide access to capital markets, be ensured, being complemented by interjurisdictional diversity in the provision of company laws. In sum, only on the basis of this regulatory interplay can innovation as exemplified by biotech pharmaceutical companies take hold.

EC REGULATION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES (UCITS)

A large amount of legislation in the field of EC banking and financial services has been produced in preparation for the 1993 deadline for a single market. In some areas the legislative programme has been more successful than in others. This paper examines one field, that of regulation of undertakings for collective investment in transferable securities — more commonly known in this country as unit trusts — and shows how far the aims of the single market legislators have been, and can realistically be, achieved in this context.