Alternative UCITS Barometer
Quarter 4, 2015
Introduction
ML Capital Asset Management, the investment manager and promoter of the MontLake UCITS Platform, is delighted to
present the 20th edition of the quarterly ML Capital Alternative UCITS Barometer (Barometer).
The Barometer is designed to help identify and anticipate key trends in the demand for the major strategies within the
Alternative UCITS sector.
The capital introductory team at ML Capital surveyed a diverse range of 50 investors who collectively manage almost
$320 billion and today invest upwards of $26 billion into Alternative UCITS, reflecting the widening of the investor
base for regulated alternative products in Europe. Respondents range from insurance and pension funds to private
banking organisations, with a significant constituent of financial advisers that deal with the primary source of
Alternative UCITS inflows, the mid-net-worth investor.
Commenting on the highlights of the latest Barometer, John Lowry, CIO of ML Capital;
“After the worst quarter for markets in five years, investors are naturally hesitant to make any major decisions as they
face into the end of the year. Bearish sentiment is at its most extreme level since 2008, usually a strong signal of a
market bottom. However with fundamentals not that strong and valuations not cheap, this argument does not hold up
well, and therefore most investors are choosing to remain well diversified and cautious until key macro issues become
clearer.
The global hedge fund industry has grown by approximately 10% a year since the financial crisis, and despite testing
conditions and generally weak returns, the challenging environment should be conducive to the best hedge fund
managers, hence our belief that the alternative UCITS sector will continue its strong growth trajectory over the next
few years. Key findings from PwC’s latest global pension fund report show that Global pensions have shown a surge in
allocations to alternative asset classes, jumping from $4.4 trillion in 2008 to $9.7 trillion in 2014, a 117% increase.
A growing percentage of these allocations are flowing into UCITS and other liquid alternative investment funds, as they
provide a substantial degree of liquidity, diversification, and a very high level of investor protection, desirable to large
funds such as sovereign wealth and pension funds. These investors are driving the increase in the average ticket size for
alternative UCITS that we are seeing more frequently of late.”
We hope that the Barometer will provide a useful insight into current appetite levels across some of the major sectors
of the regulated fund universe.
Should you have any questions then please do not hesitate to contact a member of our Cap Intro or Fund Hosting
teams.
Cyril Delamare, CEO
2
Q4 Barometer Highlights
Participant Type
24%
2%
After a quarter marred by uncertainty and volatility, caution is the watchword of
the day and the overwhelming trend in our latest investment Barometer shows
56%
16%
investors opting to maintain current positions until there is more certainty in the
markets. Of course, there are always exceptions, and there is strong demand for
both Asian and Global Macro funds in particular this quarter.
Bank/institution
Family Office
Pan-Asia Strategies at Peak Demand
Over 60% of respondents plan to start buying into Pan-Asia focused strategies,
with demand for the region at the highest ever levels, surpassing the previous high
Fund of Funds
Private bank
Wealth manager / IFA
watermark in Q2 of this year.
Global Macro Still a Hot Ticket
Participant Location
0%
Benefiting from the potential ability to weather periods of market uncertainty
9%
13%
better than most, demand for Global Macro funds continues to ride high, with twothirds of those surveyed planning to increase their allocations to the sector.
24%
Strong Rebound in Demand for US L/S Equity
Perhaps the most interesting result of all this quarter has been the very significant
Continental Europe
increase in interest in US long/short funds. Demand had fallen off a cliff in the
Global
earlier part of the year, dropping from 60% to under 20% by Q2. Investors have
UK
now regained their confidence levels with a rebound in demand to half of all
Switzerland
respondents looking to increase their exposures.
Rest of World
3
15%
2%
Looking to launch a regulated fund?
ML Capital can help you.
Whether it is a standalone fund structure or a new sub-fund of an existing umbrella,
ML Capital’s structuring team will be able to advise you on the best way forward.
 Investment Manager and Promoter to Regulated Funds
 Dedicated UCITS and QIAIF platforms with access to top tier service providers
 Structuring expertise - Re-domiciliation, Mergers
 UCITS & QIAIF infrastructure support, enabling you to focus on your investment
strategy
 Cross border distribution expertise and fund registration
 Experienced sales team for retail and institutional distribution
ML Capital: your one stop shop for investment managers looking to launch a European
regulated fund.
For more information please contact [email protected] or +44 203 709 4510
4
Long/Short Equity
Trending
• MORE • LESS
• MORE • SAME • LESS
Global Long/Short
18%
72%
Percentage Change
70%
10%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
US Long/Short
42%
50%
Percentage Change
70%
8%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
UK Long/Short
6%
80%
Percentage Change
50%
14%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Japan Long/Short
28%
28%
44%
Percentage Change
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
5
Long/Short Equity
Trending
• MORE • LESS
• MORE • SAME • LESS
2%
38%
60%
Commentary
Percentage Change
European Long/Short
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Demand for global long/short funds has remained relatively flat, with an overwhelming majority (72%) opting not to change
their portfolio exposures at present. Sector specific strategies tell a different story however.
While the Fed can’t figure out which way to go in terms of its monetary policy, key UCITS allocators have become bullish in
terms of the opportunities for good US stock pickers – and the demand trend for US long/short funds has spiked significantly
upwards, with 50% now planning an increase and 42% of respondents planning to maintain their allocations to the sector.
With 40% of UK exports flowing to the Eurozone, British exporters are losing out on the back of a strong pound; UK headline
inflation has fallen dramatically; there is 1.5% of GDP in fiscal tightening expected in 2016; and the Greater London area
housing bubble is at risk of bursting. These concerns have contributed to a sharp decline in those looking to increase
exposures to the region, with only 6% saying they will look to add to their holdings, a drop of 32% from Q3. The majority are
taking a wait-and-see approach, maintaining their holdings at current levels for now.
After racing ahead in the first half of 2015, Japan’s equity market has seen a reversal in these gains, sparked by concerns over
an economic slowdown in China, the country’s key trading partner. Our survey respondents echo this movement, as the
number of those planning to decrease their exposure or exit the sector jumps by 23%, from 5% in Q3 to 28% this quarter.
Europe is a real winner in the long/short equity sphere, as 60% said they would increases their allocations to the sector, with a
further 38% keeping their current exposures. This is propped up by several factors: good quality European stocks, such as
robust pharmaceutical compounders offering value and protection in the recent market tumble; the ECB continues to
implement supportive policies; lower oil prices; and a weaker euro benefitting exports.
6
Emerging Markets
Trending
• MORE • LESS
• MORE • SAME • LESS
Global Emerging
38%
50%
Percentage Change
12%
70%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Pan-Asia
36%
62%
Percentage Change
70%
2%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Latin America
46%
52%
Percentage Change
70%
2%
60%
50%
40%
30%
20%
10%
0%
Commentary
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
While the outlook for Emerging Markets as a block remains unclear in the short term, investors seem to be committed to
weather the potential short term squalls and almost 40% plan to increase their levels of investment to the Global EM sector.
Pan-Asia strategies are reaping the benefits from China’s stimulus efforts, which, underpinned by the economy’s healthy long-term
growth rate, should begin to bear fruit in 2016. Investors are choosing to allocate now in advance of these expectations, with over
60% of respondents to our survey planning to buy into Pan-Asia focused funds this quarter, broadening the geographic scope of their
investments. Reflecting the current complex macro situation, which sees Latin America's economy likely going into recession this year
for the first time since the end of the global financial crisis, dragged down by deep recessions in two of its largest economies, Brazil
and Venezuela, and lower demand for the region's commodities as a result of China's slowdown; almost half of our respondents
(46%) plan to reduce their exposure to the sector.
7
Relative Value
Trending
• MORE • LESS
• MORE • SAME • LESS
42%
58%
Percentage Change
Market Neutral
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Convertible Arbitrage
10%
40%
Percentage Change
8%
82%
80%
70%
60%
50%
40%
30%
20%
10%
0%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Fixed Income
72%
Percentage Change
70%
14%
14%
60%
50%
40%
30%
20%
10%
0%
Commentary
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Historically investors have always had a changeable sentiment towards relative value funds, and we see this once again in the
present challenging market conditions. Our respondents are taking a cautious approach, with the majority choosing to
maintain their current exposures to these strategies. Investors often seek refuge in market neutral funds as they work well in a
volatile environment, and it remains the most popular relative value strategy; however demand has dipped somewhat, with
the number of those planning to increase their allocations falling by 31% from its peak in Q3, to 42%. Investors tend to rely
more on fixed income strategies during times of economic downturn, however this is balanced against poorer potential for
upside return through capital appreciation and less opportunity to outpace inflation than equity investments offer. The
demand trends for those looking to increase and to decrease their holdings in this asset class have converged this quarter,
with 14% opting to increase allocations and 14% looking to decrease or exit the strategy. The majority (72%) are preserving
their current holdings.
8
Event Driven
Trending
• MORE • LESS
• MORE • SAME • LESS
Multi-Strategy
52%
Percentage Change
48%
70%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Distressed
50%
2%
Percentage Change
10%
88%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Merger Arbitrage
36%
62%
70%
Percentage Change
2%
60%
50%
40%
30%
20%
10%
0%
Commentary
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
For all three of the event driven strategies we highlighted, the majority of investors are choosing to maintain current
allocations. Multi-strategy funds are at 100% interest, with all those surveyed either maintaining or increasing their current
allocations; although again, we see a dip in the number of those increasing their holdings, down 14% from its peak in Q2, to
48%. Investors are often dubious about distressed funds as they are difficult to replicate in UCITS, sparking concerns that the
strategy is too watered down to be effective. For now, the levels of those increasing or decreasing their allocations remains
flat on the last quarter, with 88% saying they will maintain their current allocations. While interest in merger arbitrage
strategies has seen a decline since it peaked at 62% earlier in the year, there is still a substantial majority (98%) looking to
retain or increase their current levels of exposure. With global mergers and acquisitions on pace to hit $4.58 trillion this year,
the highest level on record, according to data provider Dealogic, it is clear there are opportunities to be found in this sector.
The possibility of higher interest rates, which tend to widen deal spreads, also contributes to a positive outlook facing the end
of the year and 2016.
9
Macro & CTA
Trending
• MORE • LESS
• MORE • SAME • LESS
2%
32%
66%
Percentage Change
Global Macro-Discretionary
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Global Macro Systematic
70%
Percentage Change
12%
16%
72%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
6%
48%
46%
Commentary
Percentage Change
Managed Futures / CTAs
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q2 Q3 Q4 2014 Q2 Q3 Q4 2015 Q2 Q3 Q4
Q1
Q1
Q1
Q1
Q1
Investors continue to favour global macro funds, with 66% of those surveyed looking to increase their exposure to global
macro discretionary strategies, and a further 32% maintaining current levels; 88% said they would maintain or increase
exposure to systemic global macro strategies. With low correlation to traditional markets, managed futures investments tend
to be return diversifiers and can offer a volatility reduction during market periods that are difficult for traditional strategies; in
the current market climate, 94% of those surveyed plan to maintain or increase their current allocations to managed
futures/CTA strategies to capitalise on this. Of these, 46% plan to increase their exposures, an upward revision of 13% on Q3
demand. Looking to the future, there are those who believe managed futures will always go down when stocks are going up.
However, non-correlation does not equal negative correlation: there will be periods when stocks and managed futures move
in tandem, and periods where they move opposite to one another. A longer-term perspective shows that managed futures
funds have performed in a wide range of market environments, including positive performance during interest rate hikes and
stock rallies – the key is to select the right manager, with the experience and ability to navigate varied markets.
10
Source Data
Emerging Markets
Long / Short Equity
More
Same
Less
More
Same
Less
Global Emerging
38%
50%
12%
Global L/S Equity
18%
72%
10%
Latin America
2%
52%
46%
UK L/S Equity
6%
80%
14%
Pan-Asia
62%
36%
2%
US L/S Equity
50%
42%
8%
European L/S Equity
60%
38%
2%
Japan L/S Equity
28%
44%
28%
Relative Value
More
Same
Less
Fixed Income
14%
72%
14%
Convertible Arbitrage
10%
82%
8%
Market Neutral
42%
58%
0%
Further Statistics
Press Reported
Total Press Reported Alt UCITS Assets
Event Driven
Total Press Reported Hedge Fund Assets
USD $ 381 bn
USD $ 2,870 bn
More
Same
Less
Multi-Strategy
48%
52%
0%
Distressed
2%
88%
10%
Highest Surveyed Alt UCITS Allocation
USD $ 3 bn
Merger Arbitrage
36%
62%
2%
Lowest Surveyed Alt UCITS Allocation
USD $ 15 m
Macro & CTA
Barometer Participants
Highest Surveyed Hedge Allocation
USD $ 250 bn
Lowest Surveyed Hedge Allocation
USD $ 15 m
More
Same
Less
Highest Surveyed Avg Alt UCITS Ticket
USD $ 62 m
Global Macro Discretio'
66%
32%
2%
Lowest Surveyed Avg Alt UCITS Ticket
USD $ 230 k
Global Macro Systemat'
16%
72%
12%
Managed Futures/CTA
46%
48%
6%
11
About ML Capital
ML Capital is a forward looking and leading independent investment management firm specializing in European regulated fund
structures, headquartered in Dublin, Ireland. As an award winning platform provider, we partner with the very best of investment
managers to bring to market the latest most appropriate fund structures to comply with the raft of incoming regulatory
requirements, whilst meeting the ever increasing expectations of investors.
ML Capital handles all aspects of the fund structuring and launch on investment managers’ behalf. Through our dedicated network
we offer fund sales and distribution if required and have had comprehensive coverage of investors in all key European markets for
the past 20 years.
Our goal is to provide the most appropriate fund structures to maximize distribution opportunities across all key markets. Our
solutions bring together market leading service providers with some of the very best minds in the regulated fund space; providing
well managed European investment products with the highest levels of service and governance. We ensure that all incoming
investors and partners come in with the full knowledge that they are investing into structures that are designed to protect and
preserve investor interest.
About The MontLake UCITS Platform
The MontLake UCITS Platform, domiciled in Ireland and regulated by the Central Bank of Ireland provides investment managers
with a turnkey solution for launching a UCITS fund under its umbrella structure. Typical time to market is 10 weeks, or less, with
the platform offering immediate access to a wide range of investors through ML Capital’s distribution network.
Funds placed on the platform by ML Capital will benefit from top-tier service providers including Northern Trust for custody,
administration and trustee services, KPMG for audit, and Bridge Consulting for oversight and directorships. ML Capital has also
ensured that managers utilising the MontLake UCITS Platform will have unfettered access to a network of the leading prime
brokerage firms.
For more information on ML Capital please visit our website www.mlcapital.com or our platform website www.montlakeucits.com.
12
IRELAND
SWITZERLAND
UK
26 Upper Fitzwilliam Street
Dublin 2
Ireland
34 Rue de Candolle
CP 429, 1211,
Geneva
29 Farm Street
London
W1J 5RL
+353 (0) 1 535 0912
+41 (0) 22 318 56 70
+44 (0) 203 709 4510
[email protected]
www.mlcapital.com
DISCLAIMER
INVESTMENT PROFESSIONALS ONLY
This financial promotion is issued by ML Capital Limited. This document is not intended as an
offer to acquire or dispose of any security. Information given in it has been obtained from, or
based upon, sources believed by us to be reliable and accurate although ML does not accept
liability for the accuracy of the contents. This information is not intended to constitute a basis
for any specific investment decision.
For Addressee only. The distribution of this report does not constitute an offer or solicitation.
Past performance is not a guide to future performance. The value of investments can fall as
well as rise. You should ensure you understand the risk profile of the products or services you
plan to purchase. The services provided by ML Capital Limited are available only to investors
who come within the category of the Eligible Counterparty or Professional Client as defined in
the Financial Services Authority’s Handbook they are not available to individual investors,
who should not rely on this communication. Information given in this document has been
obtained from, or based upon, sources believed by us to be reliable and accurate although
ML Capital does not accept liability for the accuracy of the contents. ML Capital does not
offer investment advice or make recommendations regarding investments.
14