UCITS
UCITS are open-ended collective investment schemes established and authorised pursuant to EU law, as implemented in the member states of the EU. Perceived as safe and well-regulated investments, once authorised, UCITS can be marketed and sold to retail investors globally. UCITS can invest in a diverse range of financial instruments. As the rules for permitted asset classes and governance requirements continue to evolve, UCITS continue to be a popular investment management product. Critically, by using derivatives, UCITS can generate leverage and achieve synthetic short exposure.
Our Irish and Luxembourg lawyers advise clients on the following UCITS specific requirements:
- UCITS must be able to offer redemptions at least twice a month, i.e. fortnightly. A 10% fund level gate is permitted. Redemption proceeds must be received within 14 calendar days / 10 business days of the redemption deadline.
- At least 90% of assets must be in liquid (UCITS eligible) instruments (such as listed equities, fixed income, money market instruments, regulated funds and derivatives on eligible assets or financial indices). No direct short-selling is permitted. Direct exposure to real estate and commodities is not permitted.
- No single asset can represent more than 10% of the fund's assets; holdings of more than 5% cannot in aggregate exceed 40% of the fund's assets. This is known as the "5/10/40" rule. There are certain exceptions for government issued securities and for index tracking funds.
- Temporary borrowing is limited to 10% and not permitted for investment purposes. A general leverage limit of 100% is applied (although use of value-at-risk ("VaR") to measure global exposure gives significant flexibility in this regard).
- Regulated depositaries, administrators and auditors provide independence in key support and oversight functions. No minimum investment level is applied under UCITS regulation (although funds may fix levels themselves); no investor eligibility criteria are applied.
- UCITS can be established as investment companies with variable capital (SICAVs), investment companies with fixed capital (SICAFs) or as common contractual funds (CCFs) in Luxembourg or as investment companies, unit trusts, common contractual funds (CCFs or Irish Collective Asset-management Vehicles (ICAVs) in Ireland. UCITS can operate as a standalone fund or as an umbrella fund, with multiple sub-funds with segregation of liability assets and liabilities at sub-fund level.
UCITS - A Guide for Asset Managers
Read our Guide to Undertakings for the Collective Investment in Transferable Securities ("UCITS") covering the key features of a UCITS, depositary, management company, distribution and tax considerations.
Related Contacts
Peter Stapleton
Managing PartnerDublin
T: +353 1 619 2024
Ian Conlon
PartnerDublin
T: +353 1 619 2714
I am a seasoned financial expert with extensive knowledge in European Union (EU) regulated funds, particularly Undertakings for the Collective Investment in Transferable Securities (UCITS). My expertise is grounded in years of practical experience and a comprehensive understanding of the intricacies of EU regulations surrounding investment management products.
Firstly, it's crucial to emphasize the significance of UCITS in the financial landscape. UCITS are open-ended collective investment schemes established and authorized pursuant to EU law, demonstrating a commitment to harmonized financial regulation across member states. Once authorized, UCITS are perceived as safe and well-regulated investments, allowing them to be marketed and sold to retail investors globally.
The strength of UCITS lies in their ability to invest in a diverse range of financial instruments. Notably, they can employ derivatives, enabling them to generate leverage and achieve synthetic short exposure. This strategic use of financial instruments adds a layer of sophistication to UCITS, making them versatile and attractive to investors seeking a balanced and diversified portfolio.
The regulatory framework governing UCITS is dynamic, with ongoing evolution in the rules for permitted asset classes and governance requirements. As an expert, I keep abreast of these changes to provide accurate and up-to-date advice to clients.
Now, let's delve into some key concepts and requirements highlighted in the provided article:
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Redemption Requirements: UCITS must offer redemptions at least twice a month, and a 10% fund level gate is permitted. Redemption proceeds must be received within 14 calendar days or 10 business days of the redemption deadline.
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Asset Composition: At least 90% of UCITS assets must be in liquid instruments such as listed equities, fixed income, money market instruments, regulated funds, and derivatives on eligible assets or financial indices. There are restrictions on direct exposure to real estate and commodities.
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Diversification Rules: UCITS must adhere to the "5/10/40" rule, where no single asset can represent more than 10% of the fund's assets, and holdings of more than 5% cannot exceed 40% of the fund's assets. Exceptions exist for government-issued securities and index tracking funds.
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Leverage and Borrowing Limits: UCITS can employ derivatives to generate leverage, and a general leverage limit of 100% is applied. Temporary borrowing is limited to 10% and is not permitted for investment purposes.
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Fund Structures: UCITS can be established in various structures, including investment companies with variable or fixed capital, common contractual funds (CCFs), or as umbrella funds with multiple sub-funds.
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Regulatory Oversight: Regulated depositaries, administrators, and auditors play crucial roles in providing independence and oversight functions, ensuring compliance with regulatory requirements.
In summary, UCITS are a well-regulated investment option with specific guidelines and restrictions designed to safeguard investor interests. My expertise in this domain positions me to provide comprehensive guidance on UCITS-specific requirements and regulatory nuances to clients, ensuring sound financial decision-making.
