By Nell Mackenzie
LONDON (Reuters) – UCITS funds in Europe saw a $38 billion outflow last year, on top of a $58 billion exodus in 2022, research provider Kepler Absolute Hedge said on Tuesday, as higher interest rates drew smaller investors away.
UCITS, Undertakings for Collective Investment in Transferable Securities, are a type of fund offered in the European Union and heavily regulated to protect retail investors.
Some of the biggest hedge funds globally offer investment vehicles through UCITS, which are either built from scratch or made to mirror their strategies.
However, these funds are suffering as higher rates means investors have more choice on where they put their money.
“Investors’ taste, since risk free rates have risen, has changed even though UCITS funds have delivered reasonable returns in the last year,” Kepler’s head of manager research Matthew Barrett said.
Firms tracked by Kepler on average gained 4.3% last year, their third best year since 2010, the report said.
“We’ve seen an appetite grow for higher volatility and diversifying returns that can beat risk free rates. The bar has gone up for new product launches,” Barrett said.
The most popular funds on the Kepler Absolute Hedge website were a mix between hedge funds and asset management strategies.
The most searched for was traditional hedge fund Graham Capital Management’s $1.4 billion Macro UCITS fund, the report said.
According to Societe Generale research, this fund posted a 2.39% return in 2023. Graham Capital Management did not immediately respond to a request for comment.
Multi-strategy funds offering many different trading styles under one roof, as well as those trading on macro economic signals, suffered the largest investor redemptions of $7.8 billion and $7.6 billion respectively, the Kepler report said.
Investors were mainly interested in smaller UCITS funds and 77% of users on the Kepler Absolute Hedge website searched for UCITS funds that managed under $1 billion of assets.
“In aggregate, fees are creeping up, and counter to expectations, investors are seemingly willing to bear fees for better quality funds,” Barrett said.
Last year 52 UCITS funds liquidated, four more than in 2022 but fewer than in 2020 and 2021, according to the report.
Unlike other funds offered by hedge funds, UCITS allow investors to take their money back within a shorter time frame.
In 2023, 84% of UCITS funds allowed investors to take back money on a daily basis. About 15% required a week’s notice if an investor wanted to redeem funds, the report added.
(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and Andrew Heavens)
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