Concerns about the Ucits brand are growing among non-European investors and regulators as the continent struggles to resolve its sovereign debt crisis. Stefanie Eschenbacher investigates.
With more than 40% of net sales outside Europe, Ucits funds have become a global brand.
Outside Europe, however, there are serious concerns over the Ucits brand following the two-year long sovereign debt crisis that threatens to break up the monetary bloc.
Didier Prime, Luxembourg asset management leader at PwC, says Ucits has been a true European success, so far. Ucits funds are also sold in Asia, the Middle East, Latin America and Africa. The eurozone crisis is perceived as a “serious issue”, especially in Asia, he says. “Some players ask if Ucits is still a guarantee for success.”
Chile was the first country to take action. Last year, its pension regulator, Comisión Clasificadora de Riesgo, decided to “disapprove” general investment in Ireland-domiciled Ucits funds.
It cast doubt on Ireland’s sovereign debt rating, which had been lowered to junk status. The Irish Funds Industry Association has since taken action to address this. “We have observed that some players have considered re-domiciliation from Ireland to Luxembourg,” says Prime, who is currently working on one such re-domicilation case.
He says it is difficult to predict how many funds may consider leaving Ireland. “They do not specifically say why they consider re-domicilation. But they say they have had questions from investors; image is important.”
He says that Luxembourg is not taking advantage of this situation, trying to attract funds from a competing domicile. Instead, Prime highlights, all European countries must act collectively.
Denise Voss, vice chairman, international affairs, at the Association of the Luxembourg Fund Industry, and her team are engaging with Chile and other countries.
Claude Kremer, president at the European Fund and Asset Management Association (Efama), describes Chile’s reaction as “a disaster” based on a misunderstanding. “We will go out and have face-to-face meetings to better understand their concerns. [This situation] is damaging to the brand; there is nothing wrong with the product and there is nothing wrong with the regulation.”
Bernard Tancré, head of product management, asset and fund services, at BNP Paribas Securities Services, says Alfi and Efama have recongised the importance to act on this. BNP Paribas, for example, has been engaging with shareholders over its exposure to Greek debt. “We are a European bank that is extremely well-managed,” Tancré says. “We are talking proactively to people … reiterating the fundamentals and solidity of the bank.”
Nevertheless, it reported a 50% drop in profit for the final three months of 2011, following further losses on its Greek debt holdings.
Having become a global brand, Kremer says, Efama plans to consult non-European regulators and investors when it comes to Ucits product development and regulation.
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