Cerulli Associates warns of Ucits illiquidity risks


While the Ucits label has gained growing popularity among European investors, analytics firm Cerulli Associates warns of illiquidity risks associated with Ucits.

According to a recent survey among fund managers, the Ucits label faces a denting if the professed safeguards of regular and speedy withdrawals prove of limited worth to redeemers if markets dry up.

The survey also revealed that investors have responded to market scares in the fixed income sector, such as the Bunds selloff, by sticking to short duration and hedging against a potential rate hike. However, a growing number of respondents cite increased difficulty in selling large blocks of even high-quality government bonds.

Institutions are faced with a conundrum, says Barbara Wall, Europe research director at Cerulli. “Not only is the fixed-income complex they are most familiar with worthless as anything but a cushion or safe harbor. Now it threatens to turn illiquid.”

Citing a Geneva-based house directing insurers’ cash into Ucits compliant hedge funds, Cerulli highlights that as some of the sector’s portfolio’s grew so rapidly that it could take “up to two years to unwind” equity positions.

Cerulli Associates also highlights that Ucits compliant hedge funds in particular are now aware of the growing risk, according to the firm, up to 40% of assets in onshore directional equities hedge funds were in portfolios that were closed to new business.

Going forward, the firm predicts that discretionary managers and direct to consumer propositions are set to benefit from further contraction of the advice market, while further regulatory initiatives are set to reinforce a concentration of the market.


More on