Are Newcits the Future of Hedge Funds or Does the AIFM Directive Provide a More Attractive Framework for Hedge Fund Managers and Investors?

Abstract:     
The recent adoption of the controversial AIFMD by the European Parliament leaves hedge fund managers and investors with a difficult choice, and one that threatens to divide the industry. The prospect of an increased regulatory burden posed by the Directive has started a trend towards so-called “Newcits”; the use of hedge fund strategies in the wrapper of a UCITS fund. The reputational value attached to UCITS is colossal and is reinforced through strong investor protection regulation. In contrast, hedge funds provide limited protection to investors and have suffered heavy reputational damage following the financial crisis and as a result of a general distrust in offshore vehicles.

This paper illustrates the impending convergence of the two regulatory frameworks and critically analyses whether hedge funds will continue to exploit the versatility and reputational value attached to UCITS or whether the AIFMD can provide a competitive product which will prove more attractive to managers and investors.

Number of Pages in PDF File: 60

Keywords: hedge fund, UCITS, newcits, alternative UCITS, regulation, AIFMD, Alternative Investment Fund Managers Directive

working papers series