Investors expect more than $185 billion to flow into UCITS III absolute return funds in the next 12 months, according to a Deutsche Bank survey of mostly European UCITS III investors.
Using current estimates that $140 billion is under management in UCITS III absolute return funds, the survey indicates the size of the UCITS III absolute return industry will double in the year ahead.
The survey, conducted by the Deutsche Bank Hedge Fund Capital Group, indicates the industry will grow significantly, with allocations to all UCITS strategies remaining high. The bank surveyed 184 investor entities, the majority of which were based in Europe. These wealth managers, insurance companies, fund of funds, family offices and high net worth individuals on average expect to have more than a fifth of their total investments in UCITS III compliant funds by 2013.
UCITS III absolute return funds deliver absolute return strategies within the UCITS III regulatory framework, which dictate that funds need to be liquid, transparent and passportable across Europe.
“UCITS III is changing the way investors may gain exposure to the alternatives industry, says Anita Nemes, global head of capital introduction. “Investors not only want to be able to invest in hedge funds, but some of them want to do it in a liquid and transparent way, that has the added benefit of regulatory oversight.”
Other key findings of the survey:
– The need for liquidity is the driving force behind this strong growth, with 29% of investors citing liquidity as being the most attractive feature of UCITS. Regulatory oversight and improved transparency came in a close second and third.
– Performance will be critical for asset growth in the UCITS industry to continue. 21% of investors believe the most important way to assess a UCITS III absolute return manager is investment performance.
– Investors are also willing to allocate relatively early in the fund life cycle, with 70% of investors agreeing to invest in mangers with only $50 million in AuM.
– A strong appetite for equities is also predicted in the year ahead, with 55% of investors looking at increasing their allocations to equity long short, 54% to emerging markets and 47% to event driven strategies.
The outlook for the UCITS III absolute return industry is bullish in Europe, says Daniel Caplan, European head of global prime finance sales and alternative UCITS distribution. The survey results confirm our experience that these products are appealing to investors, especially the larger institutional players. If the existing funds perform and we continue to see high quality product launches, then, according to the survey results, inflows could double in the next twelve months.