UCITS III planning a new investment menu

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UCITS III planning a new investment menu
Tony Stenning

• 11 November 2008

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Agenda

• Complex / diverse strategies
• Opportunities / Challenges
• Case study
• Capabilities versus expectations
• Educational requirements versus commercial
  realities
• Conclusion

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What has changed?

• UCITS Introduced in the 1980s
• Consistent fund law across 10 EU member states
• Investor protection
• Brand a great success
• But - teething problems..
• Cumbersome registration process
• Complex investment restrictions
• Individual country interpretations

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What has changed?

• By the 1990s the UCITS brand needed updating
• However, changes knows as UCITS II could not be
  agreed.
• The investment menu simply wasnt keeping pace
  with developments
• Hence UCITS III package of changes introduced in
  2002
• Goal enhance a single market for cross-border
  mutual funds in the EU
• Its a new toolbox for investment managers
• It closer aligns the needs and desires of
  managers and investors
• Real opportunity to move away from standard
  long-only equity and bond benchmarks
• Derivatives are now center stage with
  sophisticated UCITS III funds

UCITS III Funds better able to meet investors
needs
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• Hasnt replaced what was already available,
  rather increased the choice

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UCITS III Better Meeting Investor Needs
Physical shorting is still not allowed under
UCITS III, but can be utilized by hedge funds.
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As With Food, So With Investments

• Expanding choice means new questions for investors

It is vital that investors understand what they
are buying
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Seeking Market Exposure or Manager Skill?

• Understanding Greek letters

For illustrative purposes only.
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The Challenges to the Perfect Recipe

• The product
• Daily dealing?
• Platforms?
• How to market sophisticated products to a
  retail audience?
• Advertising?
• Performance fees?

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The Challenges to the Perfect Recipe

• The market
• Needed educating about this type of investing
• UCITS III
• Absolute return vs relative return investing
• Was the market ready?
• And would they be able to promote it?

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Case Study Absolute Return Fund
BlackRock UK Absolute Alpha Fund
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Evolution BlackRock UK Absolute Alpha Fund

• Absolute return unit trust utilising UCITS III
  long / synthetic short investing with pairs
  trades
• Paper traded for 13 months prior to launch to
  prove the investment process was robust
• Launched in April 2005
• The fund was soft launched to the market
• Fortnightly dealing
• Complex investment procedure
• High investment minimums
• Initial requirement was to launch the product to
  a select area of the market

The basic ingredients were right
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How Did We Promote the Fund?

• Only marketing material made available outside of
  regulatory requirements was a brochure
• Written by Investment Director, Compliance and MD
  UK Retail Business
• TCF was at the forefront of this product and the
  progression of the message was key to it success

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All About Reading The Label
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Conclusion

• Giving investors more variety
• Stress testing products is vital
• Working together with compliance, the regulators
  and marketing
• TCF is at the forefront of everything we deliver
• Investor understanding is crucial they must
  read the label

Its all about bringing the right ingredients
together to make the perfect recipe
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