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Brussels, 12 February 2008

Financial services: Commission publishes new research on investment policies of UCITS funds

The European Commission published today an important piece of new research on European investment funds. The study on "investment funds in the European Union: comparative analysis of use of investment powers, investment outcomes and related risk features in both UCITS[1] and non-harmonised markets" will feed into the Commission's reflections and preparatory work for the forthcoming communication on non-harmonised investment funds to be published in autumn 2008. The study will be one of the items discussed at an open hearing on non-harmonised retail funds and real estate funds that the Commission will organise in Brussels on 8 April 2008.

Internal Market and Services Commissioner Charlie McCreevy said "The work that we are publishing today is further input to ongoing policy reflection in the field of investment funds in Europe, not only UCITS but also retail-oriented non-harmonised funds. It is a proof of our commitment to transparent and evidence-based policy development. The study confirms the increasing use of wider investment powers by UCITS III managers. It shows that the UCITS III framework provides a very flexible environment and allows managers to implement innovative strategies. It also shows that fund managers take their responsibilities vis-à-vis retail clients very seriously".

The study surveys the investment outcomes (performance and related risks) of UCITS and non-UCITS funds over the five past years. UCITS III Directive (which entered into force in 2004) allowed UCITS fund managers to invest in a much wider range of eligible assets, to invest in derivates for hedging and leveraging purposes, and to pursue new types of investment strategy (index-based investing, fund of fund strategies). The study takes stock of how UCITS managers have used these new investment possibilities.

The study finds that a large number of UCITS funds have started to invest in derivatives. Intensive use of derivatives is confined to a small subset of UCITS funds. Generally, UCITS tend to use derivatives more intensively than non-harmonised fund managers who either do not use leverage, or have recourse to other methods to leverage fund performance (borrowing, short selling). UCITS funds making intensive use of derivatives do not exhibit a higher level of market risk in comparison with other surveyed funds. The current UCITS framework is judged by fund managers to provide a high level of flexibility in terms of investment powers

The study examines the risks associated with the use of enlarged investment powers such as leverage risk, valuation risk, liquidity risk and counterparty risk. The survey finds that fund managers develop strong risk management procedures before launching new, more complex products. Asset managers consider the suitability of their funds for retail investors as well as the risk management process they need before launching such funds.

This study represents one input to a report that the Commission will publish in autumn 2008. That Commission report will take stock of the European market for retail investment funds – both those accommodated within the UCITS framework and those currently excluded.

Open hearing on non-harmonised retail funds/real estate funds (08.04.08)

The results of the present study will be presented to an open hearing on non-harmonised investment funds that the Commission will host in Brussels on 8 April 2008.

The hearing will:

  • Examine recent developments in European retail funds and assess possibilities for cross-border retail distribution of these products;
  • Devote particular attention to markets for European real estate funds. The discussion on real estate funds will be heavily informed by a forthcoming industry expert group report on Open Ended Real Estate Funds.

Programme and registration form for the hearing are available at:

The study on investment funds is available at:

[1] Undertakings for Collective Investment in Transferable Securities

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