Regulatory changes in Europe have opened up structured products linked to hedge funds and mutual funds to new investors. Regulators in France and the U.K. (DW, 9/10) have passed legislation to allow onshore hedge funds and Germany has allowed retail investors to buy into fund of funds. In addition, the Undertaking for Collective Investments in Transferable Securities III was finalized in February and is a major step toward regulating retail hedge funds because these vehicles can short securities (DW, 10/8). Deutsche Bank (DW, 4/4), Credit Suisse First Boston and Dresdner Kleinwort Wasserstein (DW, 6/20) have demonstrated this year that UCITS III can also be used as a wrapper to package hedge funds for retail clients.
Will Kennedy, responsible for structured product marketing at UBS in London, predicts UCITS III will be used next year to wrap fund of funds. Andrew Halford, director in investment products at Kleinwort Benson Private Bank, agreed. "I think there will be demand for hedge fund products that are wrapped appropriately," said Halford.
But there are some clouds on the horizon for fund-linked houses. Hedge fund returns have been poor this year and this could deter investors.
