Alternative Ucits has become concentrated on a handful of investment themes, leaving investors underserved and leaving large European pension funds cold.
That is the view of Daniele Spada, head of the managed accounts platform at Lyxor Asset Management.
In an overview document discussing the state of the Alt Ucits market, Spada was critical of current market trends, which has led to an over-proliferation of multi-strategy and long/short approaches.
‘While there are now around 1,400 Alternative Ucits, the market is relatively concentrated in terms of the underlying strategies on offer. Over three quarters of the assets invested in Alternative Ucits are in multi-strategy, long/short equity and long/short fixed income funds, often with a long directional bias.
‘We think that investors would be well-served by a greater diversity of funds in other categories, such as event-driven, global macro, market-neutral and arbitrage strategies, alternative risk premia and long/short multi-factor strategies.’
Spada said there are leverage and liquidity constraints inherent in the Ucits rules place, which does cause limitations, but he said this needs to be addressed to cater for demand.
‘Investors will focus increasingly on a building block approach to fund selection and portfolio construction. They will want access to funds that really act as diversifiers to the existing portfolio, which after all is the key selling point of alternative asset classes.
‘Some hedge fund strategies like event driven, global macro or US long/short equity are definitely underrepresented in the Ucits space,’ he added.
Spada made the comments amid stating Lyxor AM intends to double its current Alt Ucits coverage from its existing $2.6 billion worth of fund assets over the next few years. He said this would be through diverse strategies designed to capture the imagination of Europe’s pension market.
‘We believe European pension funds will increase their allocations,’ he said. ‘In Europe, average pension fund allocations to hedge funds are still quite a bit lower than in the US. Here, we think there’s a particular role for Alternative Ucits to play, particularly since in a low-return environment pension funds are under increasing pressure to meet their savings targets.
‘At the same time, they are conscious of the relatively high valuation levels of the equity and fixed income markets. So the less directional, uncorrelated return streams promised by Alternative Ucits are attractive.’