Executive summary - Udo Bullmann

UCITS (Undertakings for Collective Investment in Transferable Securities) are speciallyconstituted collective investment portfolios exclusively dedicated to the investment of assetsraised from investors. Under the UCITS Directive, UCITS investment policy and its managerare authorised in accordance with specific requirements. UCITS’ legislation aims to establisha defined level of investor protection. This is achieved through strict investment limits,capital and disclosure requirements, as well as asset safe-keeping and fund oversightprovided by an independent depositary. UCITS benefit from a ‘passport’ allowing them,subject to notification, to be offered to retail investors in any EU jurisdiction once authorisedin one Member State.From the positive experience of the UCITS Directive, the UCITS funds developed verywell after the adoption of the Directive in 1985 as it proved to be a very efficient way todevelop a real Single Market for such a financial product while not harming investors’protection. Thanks to this Directive, UCITS benefit from a ‘European label/brand’, which isnow a tool to export pan-European expertise at worldwide level (e.g. two thirds of fundscurrently registered in Hong-Kong are European UCITS).However, there are several limits to the current framework of alternative investments in theEU. Currently onshore hedge funds/funds of hedge funds/private equity funds are fragmentedthrough divergent national regulations. So, there is still a long way to go, in developing aSingle Market for such onshore alternative investment vehicles.No actual EU regulatory framework is provided for onshore alternative investments. Agood next question is: what about offshore or non-EU regulated products?The European Commission (Commissioner McCreevy) wishes clearly to develop the socalled‘Private Placement’: i.e. the ability for a firm registered in the EU to sell any type ofproduct (including offshore funds or non-EU regulated product) in the EU, to so-called‘qualified investors’ (i.e. professional investors: insurance companies, pension funds, etc).Our concern is that the final risk will be borne anyway by the end investor (e. g. retirees,retail investors) as unit-linked life insurance and ‘defined contribution’ retirement savingproducts develop. Therefore we think that it is necessary to provide a minimum safety net foralternative products to be sold in the EU.In addition to giving increased investor protection, a EU regulatory frame for alternativeinvestments (direct hedge funds/funds of hedge funds; private equity funds) could provide asuccess similar to the UCITS case. Within the EU, a regulated framework would helpdevelop a Single Market for alternative investments, with the right level of investorprotection and possible overseeing by regulators. Out of the EU, a ‘non-UCITS fund’Directive would help develop a ‘non-UCITS fund’ brand which would be a seriouscompetitor to offshore and non-EU hedge funds/private equity funds.This proposal would take into account the fact that these funds are to be found largelyoutside EU sovereign territory and so are not accessible to direct EU-regulation. However,62