UCITS Investors Eye Merger Arbitrage Strategies
Wednesday, July 20, 2011

In its latest survey of the growing market for Alternative Alternative Undertakings for Collective Investment in Transferable Securities (UCITS), ML Capital's findings reveal Merger Arbitrage as the strategy in highest demand, with 79% of alternative UCITS investors aiming to increase or maintain their exposure in the coming quarter.

ML Capital surveyed a diverse range of active Alternative UCITS investors, who collectively manage EUR50bn and invest upwards of EUR10bn into UCITS products. The survey aims to paint a picture of forthcoming strategy allocations in order to track asset flows between UCITS strategies.

The salient findings of the latest quarterly survey include:

• Merger Arbitrage strategies are likely to see significant inflows with 49% of respondents looking to allocate more to the asset class;
• There is expected to be a big spike in demand for Market-Neutral strategies, with one third of investors wanting to increase their allocations;
• It is anticipated that there will be a drop in demand for most Equity Hedge strategies with the most dramatically affected being European and Global;
• US long/short funds are expected to receive the most demand of all Equities strategies, with almost 40% of respondents planning to raise their investments; and
• Japan is still struggling to attract attention with a lowly 7% of respondents planning to increase their allocations; the lowest level of any strategy in this quarter's Barometer.

Commenting on the latest survey, John Lowry, Co-Founder and Chairman of ML Capital, said: “The most significant trend in this quarter's Barometer appears to be a widening of interest across several strategies with more technical funds like Merger Arbitrage and Market Neutral strategies now taking prominence. [This] may be a sign that the Alternative UCITS space is now beginning to mature.”

Undertakings for Collective Investment in Transferable Securities, or UCITS, are formed under a set of EU directives that allow investment funds to distribute throughout the EU on the basis of a single authorization from one member state; UCITS III is the latest iteration of these directives.

According to a survey undertaken by Deutsche Bank in February of this year, the size of the sector is expected to more than double in 2011, assuming a level of USD140bn in assets under management in these funds. Investors are expected to allocate more than USD185bn to UCITS III funds over the year, as popularity grows for the class of 'onshore' hedge fund.