FEATURING Lyxor // Maples and Calder // ML Capital // SS&C

WEEKHFMS P E C I A L R E P O R T

AIFMD Ucits offers managers a way to side-step the AIFMD

LIQUIDITY Banks and institutional investors are drawn to more liquid products

BRAND Ucits funds enjoying post-2008 boom from cautious investors

UCITS 2015

FundLogic Alternatives PlatformLiquidity. Access. Oversight.The UCITS-compliant FundLogic Alternatives Platform offers investors the potential for alpha, via access to third party alternative managers selected by Morgan Stanley.

provides several advantages. Liquidity is enhanced. Investment strategies are diverse. Risk management is robust. Plus, clients gain the professional oversight and rigorous due diligence that comes from working with Morgan Stanley.

The FundLogic Alternatives Platform is another

www.fundlogic.com

FundLogic Alternatives Platform refers to FundLogic Alternatives plc, an open-ended investment company with variable capital and segregated liability between sub-funds established as an umbrella fund authorised by the Central Bank of Ireland. This document is issued and approved by Morgan Stanley & Co. International plc (25 Cabot Square, Canary Wharf, London E14 4QA), authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This document is intended exclusively for use by and is directed to Eligible Counterparties and Professional Clients. This document has been prepared solely for informational purposes and is not an offer to buy or sell any financial instrument or participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Morgan Stanley is not acting as your advisor (municipal, financial, or otherwise) and is not acting in a fiduciary capacity.

© 2015 Morgan Stanley. All rights reserved.

H F M W E E K . CO M 3

Published by Pageant Media Ltd

LONDONThird FloorThavies Inn House 3-4 Holborn Circus LondonEC1N 2HAT +44 (0) 20 7832 6500

NEW YORK 1441 Broadway Suite 3024 New York NY 10018 T +1 (212) 268 4919

he alternative Ucits market has enjoyed a year of strong growth, up 34% between March 2014 and March 2015, from €260bn ($290bn) to €349bn ($389.7bn). The number of

products increased 7.5%, from 1,136 to 1,221, over the same period, according to LuxHedge figures.

This HFMWeek Ucits Report 2015 will analyse the pros and cons of this liquid alt strategy and the view from prominent

industry figures that the AIFMD’s regulatory obligations are driving US and Asian managers into the Ucits space.

The debate between AIFMD versus Ucits is still ongoing. The HFMWeek Ucits Report presents views from both sides of the argument as well as a suggestion that the debate is a red herring.

Alternative Ucits has seen a dramatic increase in allocations over the past few years, although it remains a relatively niche feature of the wider Ucits sector.

HFMWeek hears from leading asset managers about what features of alternative Ucits makes this strategy so attractive to investors and their predictions for how far the industry can leverage this appetite and grow overall AuM.

TU C I T S 2 0 1 5

REPORT EDITOR Drew Nicol T: +44 (0) 20 7832 6659 d.nicol@pageantmedia.com HFMWEEK HEAD OF CONTENT Paul McMillan T: +44 (0) 20 7832 6622 p.mcmillan@pageantmedia.com HEAD OF PRODUCTION Claudia Honerjager SUB-EDITORS Luke Tuchscherer, Mary Cooch CEO Charlie Kerr GROUP COMMERCIAL MANAGER Lucy Churchill T: +44 (0) 20 7832 6615 l.churchill@hfmweek.com SENIOR PUBLISHING ACCOUNT MANAGER Tara Nolan T: +44 (0) 20 7832 6612 t.nolan@hfmweek.com PUBLISHING ACCOUNT MANAGERS Amy Reed T: +44 (0) 20 7832 6618 a.reed@hfmweek.comJack Duddy T: +44 (0) 20 7832 6613j.duddy@hfmweek.com Alex Roper T: +44 (0) 20 7832 6594 a.roper@hfmweek.com CONTENT SALES Tel: +44 (0) 20 7832 6511 sales@hfmweek.com CIRCULATION MANAGER Fay Muddle T: +44 (0) 20 7832 6524 f.muddle@pageantmedia.com

HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group © 2015 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher

Drew NicolReport editor

ASSET MANAGEMENT

QUALITY OVER QUANTITY Cyrus Amaria of Lyxor updates HFMWeek on developments and trends in the alternative Ucits market

ASSET MANAGEMENT

THE RISE OF ALTERNATIVE UCITSAdam Donoghue and Aaron Mulcahy of Maples and Calder discuss the reasons behind the growth in alternative ucits funds and what the sector might have in store for the future

TECHNOLOGY

ALTERNATIVE UCITS OFFER NEW STRATEGIES Colin Keane of SS&C explains the upcoming changes to alternative Ucits fund structures and the difference between alternative and traditional options

TECHNOLOGY

AIFMD: HELPING TOREINFORCE THE UCITS BRAND John Lowry, co-founder of ML Capital, speaks to HFMWeek about how the AIFMD is driving hedge fund managers running liquid alternative strategies to embrace Ucits

04

07

10

13

4 H F M W E E K . CO M

U C I T S 2 0 1 5

HFMWeek (HFM): What is the current market appe-tite for alternative Ucits? Do you see growth in liquid alternatives?Cyrus Amaria (CA): Th e appetite remains extremely strong and we measure that through client interest and through the number of managers we see coming to mar-ket, which includes some of the highest profi le investment managers in Europe and the US. It depends on which da-tabase you look at but we see the alternative Ucits market size being at $250bn AuM.

To give you a sense of scale, one in 10 funds launched in Q1 for 2015 were Ucits funds; that’s a prett y good indica-tor of the market strength. We see the growth, in terms of percentage change, to be far stronger for alternative Ucits than traditional off shore structures. Th is trend started in 2013 and has gained momentum each year since.

HFM: Why do you think your cli-ents are so eager to buy alterna-tive Ucits? CA: Th e primary reason is risk re-turn considerations and added to that is the diversifi cation benefi t. A good test is asking investors if they would still allocate to alternative Ucits if fi xed income yields were higher in European markets, say 3-4%. Th e fact that most say yes shows they do genuinely seem to be trying to fi nd more diversity for their portfolio.

Another consideration is liquid-ity. Liquidity was a major issue in 2008 for investors into off shore funds where much of the universe gated or sidepocketed redeeming client investments. With alternative Ucits there is a greater focus on liquidity and the majority of funds have a weekly liquidity, and in many cases even daily is possible. How-ever, off ering liquidity and providing that liquidity should not be taken for granted, we feel that liquidity risk can best be managed with oversight and independent risk manage-ment typically by an established and skilled asset manager.

Finally, the investor protection in terms of custody of assets and administration is also att ractive to investors who lived through the Madoff fraud.

HFM: What are the emerging trends in the Ucits mar-ket and how are you reacting to them?CA: Th e biggest trend is the growing number of alterna-tive Ucits funds. Th at’s a recent trend because in 2013 the numbers were dropping. Th e numbers went from

800 down to 700, which we believe was caused largely by a changing regulation on fi nancial indices and partly by performance. As mentioned earlier that’s reversed to the extent where one in 10 funds launched today are alterna-tive Ucits funds.

We are part of this growth and have doubled our ex-ternal manager range with the launch of three alternative Ucits funds year-to-date. We understand choice is positive for investors and we want to off er that choice. An increas-ing number of funds without an increase in quality can make an investor’s life a lot harder. Our job is to identify the right fund, work on the appropriate strategy and ne-gotiate the best terms on behalf of the investor, and ulti-mately we hope to off er a higher quality fund than most in the market.

A second major trend is the growth of Ucits platforms. Th e growth in platforms was close to 50% in 2014, and we are part of that growth. Lyxor’s rate of growth was 400% which made us the largest growing platform. Investors derive great value from a platform, espe-cially one from an asset manager, by the fact we have conducted due diligence and have the experience of being through the 1998 and 2008 market crises on the managed ac-count platform.

Another notable trend is the growing number of capacity con-strained funds. Managers are soft or even hard closing to invest-ment. It’s an important trend for investors because they spend a lot of time on due diligence and they don’t want to fi nd that, aft er all that

fi nancial cost and eff ort, the opportunity to invest signifi -cantly isn’t there.

HFM: Is there a possibility of managers abandon-ing their off shore funds in favour of a Ucits-focused strategy? CA: Th ere are certainly some cases where alt Ucits funds are becoming the benchmark programme of a manager’s portfolio. Some managers are even considering closing their off shore funds and making their Ucits the fl agship of their strategy. Managers must also consider that if they go into Ucits they don’t have to do AIFMD.

At the heart of this trend is the fact that if a manager has an off shore fund below $100m AuM the likelihood of their target investor base actually allocating is small. Th e statistic I’ve seen is that 70% of investors would consider

WITH ALTERNATIVE UCITS THERE IS A GREATER

FOCUS ON LIQUIDITY AND THE MAJORITY OF FUNDS HAVE A WEEKLY LIQUIDITY,

AND IN MANY CASES EVEN DAILY

”

CYRUS AMARIA OF LYXOR UPDATES HFMWEEK ON DEVELOPMENTS AND TRENDS IN THE ALTERNATIVE UCITS MARKET

QUALITY OVER QUANTITY

Cyrus Amaria is deputy head of Alternative Investments at Lyxor Asset Management. He joined Lyxor in February 2013 on the Managed Account Development team. Prior to this, he was a senior portfolio manager at Man Group in the multi-manager business for nine years. He is a CFA and CAIA charterholder.

A S S E T M A N A G E M E N T

H F M W E E K . CO M 5

AT LYXOR WE AIM TO GROW OUR FUNDS TO

$100M AUM AS FAST AS POSSIBLE IN ORDER TO ATTRACT THE LARGEST

INVESTORS

”

it. However, the very largest investors wouldn’t consider anything below $100m, or in many cases it can go as high as $200-250m.

On the Ucits side most investors consider $100m AuM to be a significant threshold so long as there are significant assets in the overall strate-gy. As many as 95% of investors could be willing to consider an alternative Ucits fund around $100m. At Lyxor we aim to grow our funds to $100m AuM as fast as possible in order to attract the largest in-vestors.

HFM: What are the key considerations to know when marketing Ucits funds in Europe?CA: A key consideration for the Ucits industry is that they are available for retail investors and that allows you to target a broader segment of the mar-ket. The marketing passport allows a manager to market the alternative Ucits fund across multiple countries and this is much simpler than working with offshore funds where you rely on private placement or reverse solicitation.

Another consideration for an investment manager, when working on an alternative Ucits fund, is whether the launch of such a fund will cannibalise their existing offshore fund. A large manager may not want to launch a Ucits fund if

they just see their investors transitioning from offshore in-vestments into an onshore version. We have some strong thoughts on this. Firstly, we want to see both the Ucits fund

and the strategy assets grow. This is important as it ensures we have selected a good manager and those investors that do not require Ucits continue to see that. Secondly, we have identified a different investor base that is interested in alternative Ucits. The largest buyers of the funds on our platform include private banks, wealth managers, fund of funds, and tradition-al asset managers. Three out of four of these investor types will not favour offshore funds. Therefore, alter-native Ucits has a specific demand from a particular client base and investment managers should both recognise this and embrace it.

One of the best examples we always give is the three alternative Ucits funds we launched in 2013. We worked with Canyon, Tiedemann and Winton. All of the Ucits funds grew in 2013 as did the man-aged accounts we had with the managers and finally their offshore funds all grew too. This is a perfect sce-

nario but the reason behind it was they are all perceived to be high quality investment funds across the offshore land-scape, managed accounts and alternative Ucits. We hope the same will be true of Capricorn, Corsair and Chenavari our new launches for 2015.

You manage, we operate ML Capital is your structuring expert for UCITS and AIFMD fund solutions. Helping clients bring new products to the market simply and cost effectively is just one way that we deliver value. Our specialist team will structure and operate your fund, while our experienced sales team will support your asset raising ambitions.

+353 1 535 0912info@mlcapital.com

mlcapital.com

Dublin | London | Geneva

Authorised and Regulated by the Central Bank of Ireland

A S S E T M A N A G E M E N T

H F M W E E K . CO M 7

U C I T S 2 0 1 5

In recent years, one of the notable trends in the Ucits space has been the proliferation of alterna-tive Ucits launches. Although in absolute terms it is still a niche subset within the overall Ucits mar-ket, latest estimates place the AUM of alternative Ucits in the region of €305.3bn as at the end of

2014, representing a year-on-year growth of nearly 30% (exponentially higher than growth rates of more tradi-tional Ucits). We examine below the causes of this growth and the future prospects of the alternative Ucits universe.

BACKGROUNDTh e ability to house alternative strategies in a Ucits wrapper was a gradual development. Th e original Ucits framework was quite constrained and conservative in terms of asset eli-gibility, until the Ucits III Directive in 2001 and then the Eli-gible Assets Directive in 2007 greatly expanded that product scope. Critically, the introduction of an ability to use deriva-tives and fi nancial indices for investment purposes enabled Ucits for the fi rst time to generate leverage; to achieve syn-thetic short exposure; and, to a large extent, replicate most (albeit not all) alternative strategies. Th is now includes (but is not limited to) absolute return; multi-strategy; CTA/managed futures; fund of funds; global macro; and com-modity/hedge fund/other index-tracking strategies.

With the regulatory tools to facilitate alternative Ucits in place by 2007, the global fi nancial crisis soon provided the real catalyst for growth. Post-crisis, European institu-tional investors in particular increasingly sought refuge in the perceived safety of the robustly regulated Ucits regime. Th at in turn bestowed a marketing premium on the Ucits ‘brand’, and prompted more and more alterna-tive asset managers to att empt to package their hedge fund strategies into the Ucits parameters and bolt a European regulated fund onto their existing product ranges.

INVESTOR APPEALFrom an investor’s perspective, Ucits funds off er many ad-vantages over less regulated regimes. Th e combination of regular liquidity (at least twice a month); minimum diver-sifi cation and maximum exposure limits; transparency in the form of disclosure/reporting requirements; restricted borrowing and leverage; the mandatory involvement of a custodian/depositary to safe-keep fund assets and act as an independent watchdog over the manager; and the granular regulatory involvement both during the launch and on an ongoing basis, all add up to a compelling set of investor protection measures. Th e advent of Ucits V next year will expand the role of the depositary (and protect in-vestor interests) still further.

ADAM DONOGHUE AND AARON MULCAHY OF MAPLES AND CALDER DISCUSS THE REASONS BEHIND THE GROWTH IN ALTERNATIVE UCITS FUNDS AND WHAT THE SECTOR MIGHT HAVE IN STORE FOR THE FUTURE

THE RISE OF ALTERNATIVE UCITS

Adam Donoghue is a partner in the Investment Funds Group in Maples and Calder’s Dublin office. He has broad experience advising on the establishment, authorisation and operation of various types of Irish regulated Ucits and AIFs, with particular focus on the alternatives space.

Aaron Mulcahy is a senior associate in the Investment Funds Group in Maples and Calder’s Dublin office. He advises on a wide variety of legal and regulatory issues associated with the establishment and operation of Ucits and AIFs in Ireland.

A S S E T M A N A G E M E N T

8 H F M W E E K . CO M

U C I T S 2 0 1 5

THE FUTURE APPEARS BRIGHT FOR ALTERNATIVE UCITS MANAGERS TO RIDE THE WAVE OF INTEREST IN

‘LIQUID ALTS’

”

At the same time, subdued market conditions in tra-ditional asset classes have grown investor appetite for exposure to alternative and uncorrelated strategies which promise higher yield and greater portfolio diversification. As a result, the increasingly innovative use of the Ucits framework in recent years has enabled alternative Ucits funds to offer a very appealing proposition, namely expo-sure to a wide range of hedge fund strategies to maximise upside potential, while limiting downside risk via reliance on the robust Ucits regulatory protections.

One criticism often levelled at alternative Ucits is that this additional investor protection comes at the price of higher service provider costs, potential tracking errors and ultimately a lower return than managers’ flagship funds. That may well be the case, but the rapid inflow of assets into alternative Ucits in recent years suggests that impact on return must be sufficiently low so it is an acceptable trade-off for investors in that space.

MANAGER APPEALFrom an asset manager’s perspective, the appeal of alter-native Ucits is straightforward: investor access and distribution. Once a Ucits fund is authorised, it can be offered on a cross-border basis across the European Union to any investors (whether insti-tutional or retail) pursuant to the Ucits marketing passport. Furthermore, a legacy of the financial crisis is that a number of European institutional in-vestors now exhibit a strong preference for invest-ing in, or are permitted to allocate greater amounts to, strategies in Ucits wrappers. Even beyond Europe though, Ucits can be registered for sale in over 80 countries worldwide: the brand truly has global recognition. This all enables managers in the hedge fund space to substantially broaden their investor base, both regionally and across in-vestor type.

We have also seen particular interest in alterna-tive Ucits from US managers witnessing the paral-lel boom in the 1940 Act ‘liquid alts’ fund market. Alter-native Ucits offer a number of advantages over their 1940 Act counterparts in terms of flexibility on: (i) liquidity (1940 Act funds must provide daily liquidity while Ucits can offer up to fortnightly liquidity); and (ii) performance fees (1940 Act funds are subject to limitations in respect of charging performance fees, while Ucits can facilitate most traditional hedge fund performance fee models).

A final and more recent attraction is that the Ucits re-gime enables managers to access European capital while entirely avoiding the AIFMD. The Ucits framework has been in place for 30 years, resulting in a clarity and predict-ability of regulatory process and ongoing requirements. Conversely, the new AIFMD regime is still in its infancy, with a great deal of uncertainty persisting on key require-ments such as the ‘letterbox’ test for minimum substance; risk management; remuneration; and depositary liability. As far as non-EU managers are concerned, there is also the great unknown of whether the full AIFMD regime will be extended to non-EU AIFMs and AIFs later this year, and what compliance implications that might bring.

In addition, the marketing passport available under the AIFMD is restricted to professional investors, and the

AIFMD brand has yet to gain material traction outside of Europe. In light of this uncertainty, it is not surprising that we continue to see certain managers explore Ucits as a first option when considering European alternative products.

REGULATORY THREATS?This combination of advantages for managers and inves-tors alike presents a rosy picture for the future of alterna-tive Ucits. The only question mark is what lies on the hori-zon from a regulatory point of view.

As mentioned, Ucits V will come into force next year, which will primarily force a restructure of custody arrange-ments and of managers’ compensation of their staff. While the scale of those changes should not be underestimated, there is some comfort in the fact that the European funds industry has just gone through the pain of implementing a parallel suite of changes under the AIFMD. Moreover, although those changes will materially impact how Ucits funds are operated, they will have no direct impact on product scope, and so should not affect alternative Ucits to any lesser or greater extent.

Instead, the uncertainty comes from the Euro-pean Commission’s 2012 consultation paper on a possible Ucits VI Directive. It raises Ucits asset eli-gibility (and the appropriateness of selling complex products to potentially retail investors) as a likely key area of focus. The initial market reaction was that in light of the imminent implementation of the AIFMD (introducing a similarly robust regulatory regime for the alternative investments sphere), the Ucits VI consultation paper could result in a retrac-tion of asset eligibility, moving Ucits back towards its more conservative/traditional product roots and forcing more sophisticated/leveraged prod-ucts into scope of the AIFMD. Any such retraction would, needless to say, be of fundamental signifi-cance to the alternative Ucits market.

However, recent indications are that this threat is somewhat diminishing. Esma has admitted that:

“Many of the more pressing issues that might have called for action under Ucits VI [such as money market fund re-form and long-term investment funds] have been or are in the process of being tackled via other measures,” and that the emphasis should instead be on ensuring the cor-rect implementation of existing rules (and the impending Ucits V) before reconsidering a possible Ucits VI.

It is folly to speculate on how the Ucits VI debate will evolve at European Commission level and it is foreseeable that restrictions may, for example, ultimately be placed on highly leveraged strategies operating within a Ucits wrap-per. The recent rhetoric should, though, at least provide alternative Ucits managers with adequate comfort and certainty for the short to medium term.

CONCLUSIONAccordingly, until such time as an asset eligibility review returns to the legislative agenda, the future appears bright for alternative Ucits managers to ride the wave of inter-est in ‘liquid alts’ and to continue to attract capital from investors who seek exposure to hedge fund-like strategies but with the added security, transparency and liquidity at-tached to the Ucits brand.

EVERY WEEK YOU WILL RECEIVE More exclusive stories than any other hedge fund publication All the latest searches and investment news Exclusive data on launches and performance Investment strategy analysis Topical comment from leading industry figures

Exclusive research surveys Regulatory developments People on the move

As a subscriber, you will also receive full registration to www.hfmweek.com, where you can access:

Daily updated performance data Exclusive research Daily news alerts Industry events information Service directory listings and much more...

vF O R M O R E I N F O R M A T I O N P L E A S E C O N T A C TThe Membership Team at +44 (0)207 832 6511 OR email membership@hfmweek .com O R V I S I T H F M W E E K . C O M F O R D E T A I L S

THE BEST READ IN THE HEDGE FUND INDUSTRY

SUBSCRIBE TO

www.hfmweek .com

P OW E R

HFMWeek reveals who’s made this

year’s investor power 30 list

ANALYS IS 16

FORMER BREVAN Howard

partner Chris Rokos has

named his new firm Rokos

Capital Management and

revealed senior staff members.

Rokos is listed as a direc-

tor of the recently incorpo-

rated firm, which is expected

to be one of the year’s biggest

hedge fund launches, along-

side Nicholas Howard and

Andrea French, according to

Companies House records.

Howard, a former Barclays

managing director, and French,

previously a partner at Brevan

Howard, have both held roles

at Rokos’ family office, estab-

lished in 2013, working as

CRO and COO, according

to their respective LinkedIn

profiles.

Rokos Capital submitted its

application for FCA authori-

sation last week and is in the

process of sourcing its service

providers for the $1bn-plus

fund, HFMWeek understands.

Mary Bynum, an inves-

tor relations pro at Comac

Capital, is also understood to

be joining the firm, while for-

mer Goldman Sachs co-head

of Asia-Pacific macro trading,

Stuart Riley, has also been

hired, according to reports.

Exact details of Rokos

Capital’s strategy are not clear,

but a global macro

focus seems likely,

Nicholas Howard and Andrea

French listed as directors of

high-profile launch

BY JASMIN LEITNER

03

COMMENT THE GROWING COST OF REGULATORY COLLABORATION 14

Ex-Brevan partner

readies Rokos

Capital for launch

TARGETING

THE CROWN

DEPENDENCIES

WOULD LABOUR LEADER ED

MILIBAND BE ABLE TO CARRY

OUT HIS BLACKLISTING THREAT?

ANALYSIS 21

The long and the short of it

ISSUE 374 2 April 2015

LAUNCH 10

DALLAS-BASED WARRINGTON LAUNCHES ONSHORE FUND

Options trader spins out of Morgan Stanley

PEOPLE MOVES 05

ALBOURNE CEO SIMON RUDDICK TO STEP DOWN

Partner John Claisse to take over from August

PEOPLE MOVES 06

PM FOR $450M ARMAJARO FUND STEPS DOWN

Oliver Denny to become lead manager from 1 April

s1 indd 1

31/03/2015 16

www.hfmweek .com

Opposition leader Ed Miliband has

the financial sector in his sights with

proposals to reform taxation rules

ANALYS IS 25

NON-DOM CLAMPDOWN

THERE HAS BEEN a 36.5%

increase in the amount of

assets London borough pen-

sion schemes allocate to hedge

funds in the past three and a half

years, according to HFMWeek

research. The findings, based on free-

dom of information requests

and independent research, show

that eight council schemes allo-

cate £550m ($806m) to hedge

funds compared to £403m

($589.6m) at the end of 2011.

Amid rising anti-hedge fund

rhetoric emerging from the

Labour party in the build-up

to the UK general election,

the research has also revealed

that most hedge fund investors

among London’s local author-

ity pension funds are Labour-

controlled councils.Six of the eight boroughs

currently allocating to hedge

funds are Labour-led, including

the three biggest hedge fund

investors – Enfield, Camden

and Lambeth – which allo-

cate about £121m ($177m) or

15%, £109m ($160m) or 9%,

and £105m ($154m) or 10%

respectively to hedge funds.

Elected councillors typically

form a significant part of a

fund’s pension committee.

This compares to 11 boroughs

which had allocated or were

close to allocating at the end of 2011.

Most councils allocating are

Labour despite leader’s anti-hedge fund stance

BY CHRIS JOSSELYN

03

COMMENT BIG BROTHER MUST ALWAYS BE ALLOWED TO WATCH 14

London boroughs see rise in hedge

fund investing

LIQUID ALTS SPACE SEES GROWING

CONSOLIDATIONHFMWEEK FINDS THAT MANY

LIQUID ALTERNATIVE STRATEGIES

ARE HAVING A TOUGH TIMEANALYSIS 21

The long and the short of it

ISSUE 375 16 April 2015

LAUNCH 10

EX-JAMISON PM STARTS COMMODITY HEDGE FUND

Marwan Younes spins out Massar Capital Management

LAUNCH 05

PVE TEAMS WITH SCIENS ON DISTRESSED DEBT FUND LAUNCH

Manager acquired $437m of Italian non-performing loans

ADMINISTRATION 07

ADMIN M&A CONTINUES AS MAITLAND BUYS PHOENIX

Luxembourg firm makes first move into UK market

001_003_HFM375_News.indd 1

14/04/2015 17:04

www.hfmweek .com

Lawyers warn managers to take great

care if deciding to rely on reverse

solicitation in Europe

ANALYS IS 21

MAN GROUP’S US distressed

debt plans are coming together

with an eight-strong team now

hired to run the strategy.

Part of Man GLG, the GLG

Select Opportunities strategy

will be led by former Perry

Capital managing partner

Himanshu Gulati, who was

hired in February 2015 to build

the team and lead the firm’s

move into the distressed space.

Joining Gulati are Rick Paige,

who is managing director/

legal, and managing directors

Eric Mason, and Ned Oakley,

HFMWeek understands.

Paige was previously manag-

ing director at Perry Capital,

where he worked for 18 years,

while Mason spent 10 years at

Lehman Brothers/Barclays,

and Oakley will join next month

from Goldman Sachs.

Jason Harris joined this

month as head trader, hav-

ing previously worked at

Mason Capital Management

in London, with Himanshu

Sheth, senior investment ana-

lyst, Taishi Kushiro, invest-

ment analyst, and David

Schwartz, investment asso-

ciate, making up the other

recruits, according to a well-

placed source.

London-listed Man, which

managed $72.9bn as of 31

December 2014, aims

to launch the special

Rick Paige, Eric Mason and

Ned Oakley join eight-strong

team

BY JASMIN LEITNER

03

COMMENT HEDGE FUNDS CREATING POLIT ICAL DEBATE IN UK14

Man Group’s US

distressed debt

team revealed

CHEYNE CO-FOUNDER

IN DEFENCE OF

HEDGE FUNDS

STUART FIERTZ WARNS ON

ANTI-INDUSTRY RHETORIC AT

HFMWEEK AWARDS NEWS 03

The long and the short of it

ISSUE 376 23 April 2015

ANALYSIS17

HFMWEEK INVESTMENT CONSULTANT RESEARCH REVEALED

New study shows strong growth from a number of big names

REGULATION 05

SEC REVEALS SECOND WAVE OF CYBER-SECURITY EXAMS

Chris Hetner joins agency as cyber lead on tech programme

REGULATION 07

LABOUR LOOKS TO ‘NEUTER’ UK MERGER ARBITRAGE

Experts warn new takeover rules will hit activist hedge funds

DANGER AHEAD

22/04/2015

www.hfmweek .com

Part 1: HFMWeek examines how insider trading rules are changing

across the globe

ANALYS IS 20

CITIGROUP SAW A 22% reduction in the number

of hedge funds it provides administration to in the latest HFMWeek/AlphaPipe quarter-

ly research survey.The research of SEC-registered firms, based on

Q1 filings, also shows BNY Mellon saw a 7% fall in funds,

from 606 to 565, although it increased RAuM by 8%, con-

firming HFMWeek’s revela-tions last year that it was shed-

ding smaller clients.Citi’s book dropped from 417 to 324 funds over the quar-

ter with RAuM falling 15%, from $217.9bn to $184.7bn.

The bank confirmed on 15 January that it was putting the

book up for sale and moving it into Citi Holdings while it

looked for a buyer.At the time, Citi had a book of $380bn globally. The HFMWeek/AlphaPipe survey

only covers SEC filings.Experts have previously

raised concerns that Citi may struggle to sell the admin book

given the number of hedge funds expected to leave.

SS&C appears to be the biggest winner, with 90 new

funds onboarded in Q1, an increase that sees it move

into second place behind Citco in the quarterly

standings.

HFMWeek/AlphaPipe research shows BNY Mellon shedding

clientsBY CHRIS MATTHEWS

03

C O M M E N T HOW DO YOU SOLVE A P ROBLEM L I K E UC I T S ? 14

Citi sees 22% drop in funds as SS&C makes big gains

THE HFMWEEK/APHAPIPE SERVICE PROVIDER SNAPSHOTLATEST DATA ON THE TOP 20 ADMINS, AUDITORS, CUSTODIANS

AND PRIME BROKERSANALYSIS 16

The long and the short of it

ISSUE 377 30 April 2015

CLOSURE 10

CITY FUND MANAGEMENT CEASES TRADING

Fund of managed accounts sustained two years of losses

ADMINISTRATION 03

SS&C RIVALS PRESSED DOJ TO EXAMINE ADVENT DEAL

Administrator complaints led to antitrust probe

SEARCH 08

DEUTSCHE PLATFORM SEEKS EVENT-DRIVEN CREDIT STRATS

DeAWM searches for cat bond and multi-strategy managers

INSIDER TRADING RULES

AROUND THE WORLD

001_003_HFM377_News.indd 1

1 0 H F M W E E K . CO M

U C I T S 2 0 1 5

HFMWeek (HFM): We’re familiar with Ucits, but al-ternative Ucits – can you give us a litt le more insight?Colin Keane(CK): Th e Ucits III Product Directive in 2001 was the catalyst for the evolution of alternative Ucits. Essentially, the directive expanded the range of ‘eligible assets’ for investment strategies. Before 2001, portfolios were only allowed to hold long-only equities and bonds. Ucits III allowed strategies to use leverage and syntheti-cally sell short through derivatives, moving from relative-based returns to absolute-based returns.

HFM: Compared to traditional Ucits, are characteris-tics and regulatory requirements diff erent for alterna-tive Ucits? CK: Th e preservation of capital and investor protection have always been key considerations for Ucits products, and this theme will continue with regard to alternative Ucits structures. All Ucits, traditional or alternative, fall under the same directive. Ucits managers are heavily regu-lated and subject to ongoing governance requirements, while every Ucits portfolio adheres to the same strict in-vestment portfolio restrictions and leverage limits.

If anything, alternative Ucits provide investors with a much wider range of investment strategies while still giv-ing investors the comfort of Ucits regulation. Alternative Ucits also off er signifi cant benefi ts to the market, as these

alternative strategies enable managers to engage with fresh talent pools in the market.

It is important that these strategies fi t within the Ucits framework and it is important to spend time prior to launch to ensure the investment strategy can operate ef-fectively within the Ucits limits. Managers trying to rep-licate their off shore portfolio with a Ucits vehicle can run into issues with limits on issuer concentration, portfolio diversifi cation, and leverage.

HFM: Does this limit the amount of investment strate-gies in Ucits?CK: Ucits directional or relative value funds can cater for a number of strategies, from sector or long/short macro

MANAGERS TRYING TO REPLICATE THEIR OFFSHORE PORTFOLIO WITH

A UCITS VEHICLE CAN RUN INTO ISSUES

”

COLIN KEANE OF SS&C EXPLAINS THE UPCOMING CHANGES TO ALTERNATIVE UCITS FUND STRUCTURES AND THE DIFFERENCE BETWEEN ALTERNATIVE AND TRADITIONAL OPTIONS

ALTERNATIVE UCITS OFFER NEW STRATEGIES

Colin Keane is country head of SS&C Ireland and leads the European managed account platform division in SS&C. Keane has over 15 years’ experience in the fund administration industry. He specialises in European regulated investment vehicles and in 2012 completed a Research Masters on the impact of regulation across offshore and European investment platforms.

T E C H N O L O G Y

H F M W E E K . CO M 11

strategies to equity market neutral or fixed income arbi-trage. While there are event-driven Ucits, they seem to be less common. You can invest indirectly in commodities, but investment limits and regulations restrict direct com-modity trading, real estate investment, and lending.

HFM: In terms of market size, are alternative invest-ment (AI) Ucits dominant in the market?CK: In terms of Ucits market share, alternative Ucits are relatively small. February 2015 EFAMA figures measure the total Ucits market at €8.7trn, for example. It’s also worth noting that there are significant variances between vendors when categorising AI Ucits. Commonly they are classed as risk-adjusted Ucits, and would have to be launched after the introduction of Ucits III.

According to Hedgeweek, alternative Ucits have been identified as one of the stand-out growth areas, with AuM in the market growing by over 41% in a year to approxi-mately €224bn.

HFM: What is the cause of such an increase in de-mand?CK: I believe there are a number of factors that may have contributed, among them regulation, uncertainty around the cost of alternative fund products, and investor appeal.

In July 2014, the AIFMD came into force for alternative funds marketing to European investors, affecting both EU and non-EU managers. This brought quite a bit of uncer-tainty to the market, with contentious issues such as the role of strict liability as well as the extensive Annex IV re-porting requirements, which led to uncertainty around the costs associated with alternative funds.

Ucits has been in existence for 25 years and is a global brand recognised by institutional and retail investors

alike. Ucits management companies and Ucits vehicles are highly regulated and very liquid, with most funds opting for more frequent liquidity than the fortnightly minimum requirement. It is a mature market with a highly transpar-ent cost structure. Finally, Ucits are more risk adverse than traditional alternative funds, most notably because of their limit on leverage and investment restrictions.

HFM: What are your thoughts on upcoming changes to Ucits? CK: I think there needs to be further harmonisation in Europe and Ucits V is a welcome initiative. It will bridge

certain gaps with the AIFMD, such as the depositaries’ role and liability, as well as the much debated remunera-tion policy. While Ucits IV focused on cross-border ef-ficiencies, Ucits V takes another step towards this with a common approach on sanctions across regulators. In terms of operating a European management company, we are gradually moving towards a common standard for management companies for both Ucits and AIFMD-compliant funds.

These common management function requirements will operationally harmonise European investment prod-ucts, providing economies of scale if managers want to of-fer a Ucits and an AIF. But there are still some differences to iron out; for example, a common standard on risk meas-urement. Under Ucits, managers can use the commitment or VaR approach to measure their global exposure, and many alternative Ucits have opted for VaR; however, this is not a measure that can be used under the AIFMD.

HFM: What can administrators do better for their Ucits managers? CK: It’s still very much a case of doing the simple things right: providing complete, accurate and timely informa-tion in a transparent and readable format. The leading fund administrators are expanding their service offerings to include Ucits regulatory and risk reporting to assist with manager requirements. Daily Ucits investment limit reporting, including optional VaR or the commitment ap-proach, reduces significant burdens for managers. In ad-dition, administrators can leverage their underlying fund data to reduce the Ucits management function burdens, such as investment policy monitoring, supervision of del-egates, and cash flow reporting.

UCITS ARE MORE RISK ADVERSE THAN TRADITIONAL ALTERNATIVE FUNDS, MOST NOTABLY BECAUSE OF THEIR LIMIT ON LEVERAGE AND

INVESTMENT RESTRICTIONS

”

A S S E T M A N A G E M E N T

H F M W E E K . CO M 13

U C I T S 2 0 1 5

Following the introduction of the Alterna-tive Investment Fund Managers Directive (AIFMD) in July 2014, it was clear from our discussions with managers that the general understanding within the alternative fund management industry was low. Even within

some of the largest hedge fund groups, there was a clear lack of clarity in terms of how the Directive might impact their business.

Now that most of the initial kinks of the Directive have been ironed out, managers have a much clearer view in terms of their options and are seeing three main paths for-ward: launching an AIFMD-compliant product; launching a Ucits; or doing nothing and relying on so-called reverse solicitation. As of the last couple of months we would say that the majority are either in the ‘do nothing’ camp or have decided to go down the Ucits route for a number of clear reasons.

HFMWeek (HFM): Why are managers choosing Ucits over AIFMD? John Lowry (JL): Th e debate between Ucits or AIFMD is somewhat misconceived in that they are diff erent con-

structs and one is designed purely to govern a liquid regu-lated fund product while the other covers how a manager runs his business. Th e dust of AIFMD has now sett led and US and Asian managers have realised that the two main options for European distribution in the long term will be to establish an AIFMD or Ucits-compliant product.

Given the inherent intricacies associated with AIFMD, such as the remuneration provisions and the reporting re-quirements, the gold standard that is Ucits has become the structure that many managers are now choosing.

Th e Ucits brand has grown over three decades making it a draw for a large portion of the global investor base, off ering increased transparency, tax effi ciency, att ractive liquidity and regulatory oversight. Th e AIFMD is still in its relative infancy and is certainly overshadowed by the established brand of Ucits.

HFM: Why is the AIFMD driving US and Asian man-agers to fi nally embrace Ucits?JL: By 2018 national private placement rules will be phased out and the clear consensus is that reverse solicita-tion is no longer an eff ective distribution strategy. If man-agers based outside the European Union are not willing

JOHN LOWRY, CO-FOUNDER OF ML CAPITAL, SPEAKS TO HFMWEEK ABOUT HOW THE AIFMD IS DRIVINGHEDGE FUND MANAGERS RUNNING LIQUID ALTERNATIVE STRATEGIES TO EMBRACE UCITS

John Lowry is managing director of ML Capital, investment manager to the MontLake Ucits Platform. Prior to co-founding ML Capital in 2009, he was a partner at Tara Capital, a leading global distributor of hedge funds which helped money management clients attract over $3bn in new assets.

AIFMD: HELPING TOREINFORCE THE UCITS BRAND

A S S E T M A N A G E M E N T

1 4 H F M W E E K . CO M

U C I T S 2 0 1 5

to meet the obligations of the AIFMD, Europe should be avoided at all cost as opposed to relying on the risky strategy of reverse solicitation and waiting for the phone to ring. At best the legal complications of this strategy could be costly, and it could damage the reputation of a business very severely. While there still is some evidence in the marketplace that some non-European managers are intending to side-step the Directive’s marketing restric-tions by relying on this strategy, more and more are recog-nising the benefits of Ucits and committing to launching a European regulated structure that offers the flexibility of cross-market distribution.

There is a well-documented tale of the lack of non-European domiciled managers within Ucits and that the space is dominated by European based managers, howev-er as the market has begun to diversify and the AIFMD has reinforced the strength of the Ucits brand for managers running liquid strategies, there are a growing number of both US and Asian strategies now avail-able and this is a clear trend that we feel is set to continue.

HFM: Tell me about the alternative Ucits investor base and some recent key trends?JL: The rapid rise of alternative Ucits as-sets has been relatively well documented, however less well reported have been the reasons behind the numbers and where the real growth has come from. While the strongest support to date has come from the private banking and FoFs sec-tor, a considerable number of European wealth managers and an increasing num-ber of larger institutional investors (pen-sion and insurance groups) have moved capital from long only to long/short strategies and are certainly contributing to the growth in Ucits AUM.

Ucits is increasingly the product of choice for the institutional world and the reasons for this are varied. Ucits offer a more tax efficient structure than their offshore counterparts and are certainly more accept-able structures from a Solvency II perspective. Interesting-ly, recent research conducted by Preqin revealed that of the increasing number of Institutional investors attracted to Ucits, almost half of those feel that greater transparency of Ucits is key.

In the dominant HNWI market, platforms in a number of countries such as Germany and Italy have embraced al-ternative Ucits and have taken action to encourage further investment. German tax authorities amongst others only request that investors pay taxes on their holdings when they decide to liquidate their full position, whilst Italy has increased the tax rate on offshore funds. Enhancing the at-tractiveness of Ucits has certainly supported asset raising potential throughout Europe and helps broaden the po-tential investor base.

HFM: Having made the decision to launch an alterna-tive Ucits fund, how do you go about building an effec-tive distribution strategy?

JL: Key to the success of any alternative Ucits launch is a well-developed and effective strategy for the distribution of your fund. You need to quickly figure when and where – and if at all, your fund will be well received and focus your attention on those early stage investors.

At ML Capital we have identified three main types of investors that allocate to alternative Ucits. While the big-gest support to date has come from the private banking and FoFs sectors, the most interesting development over the past 18 months that we have seen has been the rise in allocations from large institutional investors.

The largest investor in terms of numbers is within the mid-net-worth marketplace dominated by a variety of banking channels, investment advisor networks, fund platforms and insurance groups fund linked product lines. This segment requires in-depth knowledge and a large on the ground sales force promoting the products on an active basis as well as taking care of the negotiations and

paying of rebate commissions. This is a time intensive process.

At the other end of the scale is the institu-tional investor base. Clearly far less numerous and dominated by European names, it does include an increasing number of non-Euro-pean institutions, mainly Asian based groups but also a growing number of Latin American, Middle Eastern and Canadian institutions. This is where the largest tickets are sourced. These tend to be pension funds, treasury management companies and insurance com-panies and while they tend to be longer term investors they also can take a considerable time to commit. They also are usually advised by an independent consultant.

The HNWI, private banking and FOFs were early adopters to the alternative Ucits brand and have helped many managers get to scale in order to attract larger investors. This segment is the key part of the traditional offshore hedge fund client base and covering

these investors is all about getting the fund on the ap-proved list of the banks, roadshows with the manager and personal relationships.

ConclusionThe strong growth in popularity of alternative Ucits wit-nessed over the past decade, particularly following the global financial crisis, is set to continue. This upward tra-jectory combined with the introduction of the AIFMD has influenced a growing number of US and Asian manag-ers to launch a Ucits product. Managers are now making the strategic decision to enter the market and if running a liquid alternative strategy – Ucits is the only logical choice to effectively raise significant assets in Europe.

At ML Capital we are witnessing a growing number of leading managers who have decided to embrace every-thing Ucits can offer, with a raft of launches on the runway set to change the competitive landscape of the industry.

The opportunity set for alternative Ucits is evident, how-ever it is key that non-European managers find the right partner with local knowledge, and a genuine understand-ing of the complexities of cross-border distribution.

WE ARE WITNESSING A GROWING NUMBER OF LEADING MANAGERS WHO HAVE DECIDED TO EMBRACE

EVERYTHING UCITS CAN OFFER WITH A RAFT OF LAUNCHES ON

THE RUNWAY SET TO CHANGE THE COMPETITIVE LANDSCAPE

”

ssctech.com/fundadministration

Fund Managers Can’t Always See the Future

But with SS&C, they’re always prepared for it. SS&C GlobeOp® offers the expertise, independence, transparency, and nimble, world-class technology you simply won’t find at any other service provider. That’s why SS&C can deliver the speed and agility to service any new instrument, asset class, market, or regulation in your future.

We are the future of fund administration. We are SS&C.

T H E P O W E R T O P E R F O R M I N A N Y M A R K E T

Lyxor’s Alternative UCITS Platform is the result of more than 17 years of analyzing and selecting the best hedge funds in the industry, taking into account the pedigree of the manager, the performance engines, the operational structure and the risk monitoring process. You can now access the best alternative managers in a risk-controlled and regulated UCITS format. To know more, contact our experts at clients-services@lyxor.com or visit: lyxor.com

6 HEDGE FUND EXPERTS IN THEIR RESPECTIVE STRATEGIES

FASTEST GROWINGPLATFORM WITH MORE THAN $1BN AUM*

PIONEER IN FUND SELECTION SINCE 1998

IT’S EASIER WHEN CHOOSING FROMTHE BEST ALTERNATIVE UCITS

ETFs & INDEXING • ALTERNATIVES & MULTI-MANAGEMENT • ABSOLUTE RETURN & SOLUTIONS

*Source: TOP 10 UCITS Platform by HFM Week (Dec 2014); Figures as of March 31st 2015

Canyon Capital1

Event Driven, CreditStrategy

Capricorn Capital2

Long/ Short EquityEmerging MarketsStrategy Winton Capital4

CTA Diversifi edStrategy

Lyxor CTA Strategy

TiedemannInvestment Group3

Merger ArbitrageStrategy

THIS COMMUNICATION IS FOR PROFESSIONAL CLIENTS ONLY AND IS NOT DIRECTED AT RETAIL CLIENTS. Not all advisory or management services are available in all jurisdictions due to regulatory restrictions. None of the hedge fund experts mentioned herein (“HF”) take any responsibility for the accuracy or completeness of the contents of this document any representations made herein, or for the fi nancial performance of their own strategies. Lyxor Asset Management (Lyxor AM) and each HF disclaims any liability for any direct, indirect, consequential or other losses or damages, including loss of profi ts, incurred by you or by any third party that may arise from any reliance on this document. Each HF is neither responsible for or involved in the marketing, distribution or sales of the Fund nor for compliance with any marketing or promotion laws, rules, or regulations; and no third party is authorised to make any statement about any of the relevant HF’s respective products or services in connection with any such marketing or sales. Lyxor Asset Management, Société par actions simplifi ée, having its registered offi ce at Tours Société Générale, 17 cours Valmy, 92800 Puteaux (France), 418 862 215 RCS Nanterre, is authorised and regulated by the Autorité des marchés fi nanciers (AMF). This communication is issued in the UK by Lyxor Asset Management UK LLP, which is authorised by the Financial Conduct Authority in the UK under Registration Number 435658.

1Canyon Capital Advisors LLC 2Capricorn Capital Partners UK Limited 3TIG Advisors LLC 4Winton Capital Management Limited 5 Corsair Capital Management LP

Corsair Capital5

Long/Short Equity US