Newcits: Investing in UCITS Compliant Hedge Fundsis a one-stop resource for investors who want to get the best outof their UCITS investments. There is a large and increasing rangeof UCITS compliant funds out there, but despite their tighterregulation and frameworks, investors still need to understand therisks they are undertaking, the structures of the funds and theirdifferences and similarities to mutual funds and hedge funds.
The book begins with an assessment of the financial crisis fromthe perspective of hedge funds and funds of hedge funds. Then itintroduces the UCITS framework and shows how these strategiespresent a valuable and attractive alternative to offshore hedgefunds and funds of hedge funds. The regulatory framework isdescribed in depth, as are the different business models used byasset managers. Finally it looks at current hedge fund strategiessuch as long/short equity or global macro, and at how these can beintegrated into the framework.
The book also describes in detail the Newcits industry,discussing the performances, the fee structure, the liquidity andthe key theme of "replicability", studying the tracking errorvolatility of the Newcits funds in comparison with their offshoreversions. A discussion of the effectiveness of the regulation andits potential developments concludes the book.
About the Author
TOMMASO DEROSSI, Management Engineer, graduated withhonours from the University of Bergamo. He worked as researchassistant at the Italian Stock Exchange, Department of EconomicResearch, where he managed market statistics about tender offers,IPOs and equity offerings. He cooperated with Universoft asCorporate Finance analyst, participating in the valuation processof many Italian companies operating in the IT sector and supportingresearch about Corporate Governance issues in European listedcompanies. He is currently employed in the ICT division atLombardini Holding, an Italian retailer, and is responsible for ICTprojects concerning the finance & administration area.
MICHELE MEOLI (PhD) is an Assistant Professor ofCorporate Finance at the University of Bergamo, Department ofEconomics and Technology Management. He has been Marie CurieResearch Fellow at the Centre for Econometrics Analysis, CassBusiness School of the City University of London. He has authoredarticles in a number of international journals, covering severalresearch areas, such as corporate finance, corporate governance andfinancial econometrics. Since 2007, he has lectured Principles ofFinance, Business Valuation, and Business Economics at theUniversity of Bergamo.
SILVIO VISMARA (PhD) is an Associate Professor ofCorporate Finance at the Department of Economics and TechnologyManagement of the University of Bergamo. He has been researchfellow at the Manchester Business School and has been visiting atthe University of La Laguna, at the Cass Business School, and atthe University of Florida. He has participated in numerous appliedresearch projects, promoted by the Italian Ministry of Research,and other private and public institutions. He is author of articlesin international journals such as Entrepreneurship Theory andPractice, Journal of International Financial Management andAccounting, Journal of Technology Transfer,International Journal of Entrepreneurship and Innovation,Managerial Finance, and Annals of Finance. He isscientific consultant for the Italian Stock Exchange and founder ofUniversoft, a spin-off from the University of Bergamo.
Table of ContentsPreface by Massimo Mazzini.
Introduction: The Crisis of 2008 and theWay Out.
1 From UCITS Directive to UCITS III Provisions.
1.1 Product Directive.
1.2 Management Company Directive.
1.2.1 Simplified Prospectus.
1.3 Additional Regulatory Limits Imposed by UCITS III.
1.3.1 The Prohibition on Borrowing and Short Selling.
1.3.2 Prohibition on Investment in Commodities.
1.4 The Next Step: UCITS IV Directive and New Provisions byEU.
1.5 Simplification of the Notification Procedure.
1.6 Replacement of the Simplified Prospectus with the KeyInvestor Document.
1.7 Management Company Passport.
1.8 Master–Feeder Structures.
1.9 Mergers between UCITS.
1.10 New EU Directive on Alternative Investments.
2 Business Models for the Production of Newcits and ManagedAccounts.
3 Analysis of Operational Model of UCITS IIIProducts.
3.1 Luxembourg SICAVS.
3.1.1 Harmonized and Non-Harmonized UCITS.
3.1.2 Self-Managed and Hetero-Managed SICAV.
3.2 CSSF 07/308 Circular: Guidelines for Luxembourg UCITS.
3.2.1 Structure of the Risk Management Unit.
3.2.2 Activities of the Risk Management Unit.
3.2.3 Determination of the Global Exposure for Non-SophisticatedUCITS.
3.2.4 Determination of the Global Exposure for SophisticatedUCITS.
3.2.5 The Counterparty Risk.
3.2.6 Limits of Concentration risk.
3.3 Swing Pricing.
3.3.1 The Swing Factor.
3.3.2 Pros and Cons of Swing Pricing.
3.3.3 Pros and Cons of Full and Partial Swing.
3.3.4 Operational Implications.
3.4 Depositary Bank, Administrator and Lack of Prime Broker.
3.4.1 The Role of the Administrator.
3.4.2 The Lack of Prime Broker.
4 Hedge Funds Investment Strategies and Limits Set by UCITSIII.
4.1 Long/Short Equity.
4.1.1 Equity Market Neutral.
4.2 Relative Value.
4.2.1 Convertible Bond Arbitrage.
4.2.2 Fixed Income Arbitrage.
4.2.3 Mortgage-Backed Securities Arbitrage.
4.3 Directional Trading.
4.3.1 Global Macro.
4.3.2 Managed Futures (CTA or Systematic Futures Trading).
4.4 Event-Driven (or Special Situation).
4.4.1 Merger Arbitrage.
4.4.2 Distressed Securities.
4.5 Other Strategies.
4.5.1 Statistical Arbitrage.
4.5.2 Index Arbitrage.
4.5.3 Volatility Arbitrage.
4.6 Limits Imposed by UCITS III.
4.6.3 Characteristics of the UCITS III Funds Appreciated byInvestors.
4.6.4 Main UCITS Rules.
4.6.5 Additional Rules to Consider.
4.6.6 Collateral Management Guidelines.
4.7 “Synthetic” Short Selling and Contracts forDifference.
4.8 Synthetic Newcits.
5 The Early Stages of the Newcits Industry.
5.1 Description of Sample.
5.2 Implemented Strategies.
5.3 Fee Structure.
5.4 Performance Analysis.
5.5 Tracking Error and Tracking Error Volatility.
5.6 Multivariate Regression Analysis on Panel Data.
5.7 Exposure to Risk Factors for each Strategy.
5.8 Contribution by Factor to the Historical Returns.
5.9 Liquidity Comparison.
5.10 Performance Contribution Analysis at Industry Level.