The Impact of European Product Regulations on Global Product Structuring

Abstract

This article attempts to elucidate how European regulations currently being put in place will modify the fund management industry. It is based on an online questionnaire that was sent to professionals within the fund management industry (UCITS and alternative asset managers, their service providers, external observers, and investors). There are 437 respondents to the survey, reporting assets under management of more than €13 trillion. Regulatory constraints on institutional investors play a large role in the way funds are structured. Pension funds, the institutional investors subject to the fewest quantitative restrictions, are five times less likely, all else equal, than the average survey respondent to ask for hedge funds strategies to be restructured as UCITS. Investment regulations being enforced by the European Commission fail to provide incentives for hedge funds to be structured as AIFMD-regulated alternatives and instead create incentives for them to be structured as sophisticated UCITS called NewCITS. Only UCITS, after all, benefit from a distribution passport. These regulations could thus lead to a wave of NewCITS rather than to hedge funds that comply with the AIFM directive.