Undertakings For Collective Investment In Transferable Securities Research Articles

Creating factor clusters in the alternative Undertakings for Collective Investment in Transferable Securities (UCITS) universe

After years of expansion, the alternative Undertakings for Collective Investment in Transferable Securities (UCITS) market experienced wide fluctuations in performance during the Covid-19 market crisis. Using a novel quantitative process that utilizes Premialab Pure Factors, we identify seven clusters within a universe of 323 alternative UCITS based on their performance and factor characteristics. Investors can gain additional insights into their current or prospective alternative UCITS holdings by observing their performance in the context of the relevant cluster.

ESMA’s Mission to Integrate ESG Risks and Factors into UCITS and AIFMD: Value Added or Additional Administrative Burden

Environmental, social, and governance (ESG) factors are getting more and more important for the fund industry, not only for the management companies of the funds but also especially for the investors who become more sensitive to these kinds of aspects. This increasing importance has also been recognized by the European Commission, which officially mandated on July 24, 2018, the European Securities and Markets Authority to provide technical advice on how sustainability risks and factors should be integrated in European regulation. This article examines which approach the European Securities and Markets Authority suggests in order to integrate sustainability risks and factors in the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive and how this is seen by the market, as burden or value added, and therefore will be in the interest of UCITS management companies, self-managed UCITS investment companies, Alternative Investment Fund Managers, and their associations and for investors in these products. <b>TOPICS:</b>ESG investing, portfolio construction, portfolio theory <b>Key Findings</b> • ESG factors are getting more important for market players, and there are still a lot of challenges ahead. • ESMA’s initiative was well received from the market and helps to close the gap. • Market participants mainly don’t see this initiative as administrative burden but more a value added.

An update on the EU securities financing transactions regulation

PurposeTo provide an update and detailed explanation on the EU Regulation on Transparency of Securities Financing Transactions and of Reuse (“SFTR”).Design/methodology/approachExamines the SFTR, its key measures and requirements.FindingsConcludes with a number of considerations and recommendations. For example, it advises managers of Undertakings for Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs) to prepare to disclose details of their use of securities financing transactions and total return swaps.Originality/valueOffers information on the SFTR and explains its requirements and scope. It has been written by a partner at an international law firm.

Does it still make sense, from the EU perspective, to distinguish between UCITS and non-UCITS schemes?

This article aims to discuss the usefulness of the distinction between the categories of Undertakings for Collective Investment in Transferable Securities (UCITS) 1 and non-UCITS schemes, 2 within the regulation of asset management. 3 The purpose is to understand whether this distinction still makes sense after the adoption and the implementation of the Alternative Investment Fund Managers Directive 4 (AIFMD) among the Member States, from the European Union (EU) 5 and UK 6 regulation perspectives. 7 UCITSs are open-ended retail investor funds established according to the provisions of the UCITSD. 8 This Directive represents one of the first initiatives of the EU legislature to create a single market for financial products. In this regard, the Directive harmonized the EU Member States’ internal regulations on the funds and the management companies. In particular, the Directive regulates the working structure of these funds. Accordingly, UCITSs must have a depositary who holds the fund’s assets in order to grant more protection to the investors and a separate management company. The Directive also sets forth some relevant limits of investment and in borrowing in order to protect the retail investors, given that these funds have been created in order to satisfy particularly the needs of these investors. This harmonization represents the legal basis of the European passport regime. The passport is a legal instrument of great importance because it allows the managers of UCITSs to market freely their funds to every kind of investor within the EU territory. This means that these funds may be marketed on a cross-border basis in every EU Member State in the same way as domestic retail funds.

Romanian Unit-linked Life Insurance Market

This study presents the legislation that regulates the Romanian unit-linked life insurance market. The main document that regulates both the insurance business on Romanian market and the organizing and operating of the Insurance Supervisory Commission (CSA) is Law no.32/2000 on insurance undertakings and insurance supervision, as amended and supplemented, which provides: organizing and operating of insurance, insurance/reinsurance and reinsurance undertakings, of mutual undertakings, as well as of insurance intermediaries; organizing and operating of the CSA; supervision of the insurance and reinsurance undertakings conducting business in or from Romania; supervision of the insurance and reinsurance intermediaries, as well as the supervision of other activities related to the insurance mediation. The legislation which regulates the Romanian insurance market includes: norms issued by CSA; laws and governmental ordinances that regulate the Romanian financial market; CSA draft regulations which are to be submitted to consulting with the players on the market; EU Directives in the insurance field; repealed or no longer in force legislative acts and international sanctions. According to Directive, 2002 /83/EC, unit-linked life insurance products were defined as insurance contracts where the benefits provided are directly linked to the value of units in undertakings for collective investment in transferable securities (UCITS) or to the value of assets contained in an internal fund owned by the insurance undertaking, usually divided into units, or a share index or some other reference value. The financial supervision shall include verification, with respect to the insurance undertaking's entire business, of its state of solvency, the establishment of technical provisions, including mathematical provisions, and of the assets covering them, in accordance with the rules laid down or practices followed in the home Member State pursuant to the provisions adopted at Community level. Each Member State shall require of every insurance undertaking whose head office is situated in its territory an adequate available solvency margin in respect of its entire business. In general the European Union requirements and the national requirements are common for all life insurance products offered by an insurance company and also there is not a very clear distinction between the legislation regarding unit-linked life insurance products and the one regarding traditional life insurance products. Policyholders want to enjoy the benefits of equity investment in conjunction with mortality protection, and insurers have developed unit-linked contracts to meet this challenge. Unit linked insurance products are life insurance policies with investment component. Although some unit-linked contract types pass most of the asset risk to the policyholder and involve little or no investment risk for the insurer, it was natural for insurers to incorporate payment guarantees in these new contracts.

National marketing and product distribution rules for UCITS: a critical analysis

This article examines the development of the notification procedure for passporting in terms of the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the internal market concerns that emerge from the application of national marketing rules by the host Member State. As a means to resolve the resulting obstacles to passporting in practice, the paper makes recommendations for a soft-law approach based on reflexive governance of financial supervision, supplemented by a mechanism for transparency. The article also reviews the Markets in Financial Instruments Directive (MiFID) conduct of business rules that apply to investment firms with regard to the distribution of financial products, including the selling of UCITS. It examines the amendments to this field of regulation as proposed in the MiFID II legislative initiative. The article argues that the classification of structured UCITS as a complex product for the purpose of MiFID is likely to have a negative impact on the strength of the UCITS brand.

Independence and focus of Luxembourg UCITS fund boards

Investment funds are potentially plagued by principal-agent problems between investors and fund management companies, in particular with respect to fees. Market forces play a role in mitigating these problems, but based on existing empirical studies, there can be doubts about whether these forces are sufficient for protecting investor interests. When market forces fail, there is room for fund boards to add value for investors. U.S. funds have mandatory independent directors who are empowered to be the watchdogs for the fund investors, negotiating fees with the fund management company on their behalf. This is not the case for Luxembourg funds that are established in accordance with the EU Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. This study uses a sample of Luxembourg UCITS funds and shows that, although there is no regulatory requirement, approximately half of the sample funds have appointed at least one independent board member. A survey among board members of the sample funds showed that, in the absence of the requirement to negotiate fees with the fund management company, Luxembourg boards give relatively low priority to costs, which they see as primarily the responsibility of the promoter, leaving the monitoring to market forces. This finding is irrespective of whether or not the board has (semi-) independent board members.

(Non-)complexity through the eyes of MiFID

The European Commission recently published legislative proposals to reform the Markets In Financial Instruments Directive (MiFID). This note elaborates on the proposed shift in classification of “structured Undertakings for Collective Investment in Transferable Securities (UCITS)”. While MiFID I labeled all UCITS “non-complex”, MiFID II deems all structured UCITS “complex”. We propose a logical and consistent framework to refine this dichotomy and identify a limited number of product types amongst the various kinds of structured investments. The classification is traceable, comprehensible and is proposed as the basis of a “complexity indicator” that surpasses the current generalisation.

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.

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.