UCITS: Happy 25th birthday
Today is the birthday of a European success story: the first UCITS Directive dates from 20 December 1985, exactly 25 years ago. With over €5 trillion in assets under management, UCITS have proven to be one of the great success stories of the Single Market. UCITS are also widely sold to investors outside the EU because their high level of investor protection is popular with international regulatory authorities.Today, more than 75% of the UCITS funds distributed internationally are based in Luxembourg. LFF spoke to Camille Thommes, Director General of the association of the Luxembourg Fund industry (Alfi) about the UCITS phenomenon.
Why are UCITS products so popular with foreign regulators?
The aim of this Directive was to set up a single regulatory regime across the European Union for open-ended funds investing in transferable securities such as shares and bonds, while ensuring a high level of investor protection. The UCITS framework has evolved over time. “UCITS IV”, which introduces the latest amendments to the UCITS legislation, will have to be implemented into national law by Member States by1 July 2011.
Although UCITS were initially intended only to be marketed across the European Union, the UCITS brand is now recognised as the only truly globally distributed investment fund product. As a result, an increasing number of asset managers are establishing UCITS funds with a clearly defined global distribution strategy.
A growing number of countries in Asia and Latin America have accepted UCITS because they are convinced that the UCITS framework provides a stable, high quality, well-regulated investment product with significant levels of investor protection. And Luxembourg has successfully positioned itself as the global leader for cross-border distribution of investment funds, with the result that today more than 75% of UCITS funds distributed internationally are based in Luxembourg.
Why are Luxembourg UCITS funds sold more successfully around the world than any others?
Luxembourg UCITS are distributed in 58 countries worldwide. 19 of the top 20 cross-border promoters in terms of the number of countries of distribution use a Luxembourg UCITS platform for their global distribution strategy. Luxembourg UCITS funds have now become a strong global brand but it really started as a first mover advantage: Luxembourg was the first country to implement the UCITS Directive into national law which attracted international fund promoters to Luxembourg.
These funds needed services providers: auditors, law firms and custodians; Luxembourg therefore developed expertise in these activities, which in turn attracted more promoters. Today, Luxembourg has become a centre of excellence for investment funds with more than 300 regulated professionals of the financial sector capable of serving all types of funds and providing operational support for all EU and non EU distribution countries. In addition, the skilled and multilingual workforce available in Luxembourg is essential to service funds sold in so many different countries.
Luxembourg’s sophisticated legal and regulatory framework, political stability and sound public finances reassure the supervisory authorities of distribution countries worldwide. In addition, the international reputation of our own supervisor, the CSSF, plays an important role.
Is this Europe’s greatest success story in terms of an integrated financial market?
UCITS is definitely a great European success story. It all started with the modest ambition of defining a framework for funds within the European Union and ended up with a strong global brand for investment funds recognised around the world. UCITS is the only type of fund that has achieved this international recognition and is a source of inspiration for many countries outside Europe.
It is also a great success story in terms of an integrated financial market: a fund domiciled in one European country can easily be sold throughout the European Union. This will be further improved with the simplified notification procedure which is part of UCITS IV. The level of investor protection provided by the Directive is the same in each European country.
Has UCITS boosted long term savings in Europe?
I think this is a topic that will gain importance in the near future. When you talk to retail investors, when you try to grasp their needs and expectations, you soon realise that their main concern is to find solutions for their long-term savings needs. Retirement is a prime example.
Investment funds provide a key tool to address the challenge of pensions because of the funds’ ability to deliver long-term performance that preserves the real value of people’s retirement savings.
UCITS are eminently suitable to serve as the underlying investment products within a harmonised European retirement Plan. UCITS are recognized for their benefits in terms of risk diversification, liquidity, safety, transparency and predictability.