I had always thought that the advent of a UCITS equivalent for alternative funds under the Alternative Investment Fund Managers Directive would lead non-European hedge fund managers to establish alternative investment funds (AIFs) as the default when considering setting up a European fund.

That view was based on multiple factors: (1) that the Undertakings for Collective Investments in Transferable Securities had investment restrictions that were too limiting for certain strategies, (2) that the UCITS required at a minimum biweekly liquidity, and (3) AIFs allowed fund managers to replicate their offshore strategies in an onshore regulated fund.

This runs contrary to what DMS has seen in the 10 European management company appointments secured during July and August. These appointments have seen six UCITS funds, compared to four AIFs.

It may be that these 10 cases do not fully represent the market as a whole, but they certainly lead us to ask a pertinent question: why are alternative investment managers willing to take on the more restrictive regulations of the UCITS, when a tailor-made alternative is available?

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Originally published by Law360.

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