8056 getting the cat back in the bag year 2011 month 11 start 1



Put The Cat Back In The Bag

Written by David Norman

November 10, 2011

Where swaps and other derivatives are involved, what is the level of disclosure of risk within non-index UCITS funds? And what about life funds—do they not often use OTC derivatives to protect solvency? Are these well collateralised, well priced and transparent? Who knows?

Don’t be ridiculous, you might say. Of course we can’t have full disclosure of every derivative instrument in a UCITS or any other retail fund. But the issue is that investors are supposed to be reassured when a fund is compliant with the UCITS rules and, in my opinion, these rules have been flexed to allow inappropriate and complicated structures such as synthetic ETFs with mismatched reference baskets inside the regime.

What next?

The UCITS regime was originally intended to create simple, diversified products that could be sold in high streets across Europe. UCITS III and IV have introduced levels of complexity that didn’t exist before. While the objective may be to reduce risk, that will only be achieved if there is a clear and honest demonstration of aligned interests, together with a full disclosure of costs, revenues and counterparties, that the man or woman in the high street can trust. Anything less increases the risk to one of the greatest ever investment brands, UCITS.




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The views expressed by those blogging are for informational purposes only and should not be construed as a recommendation for any security.

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