EUROPE: What are the Concentration Rules for a UCITS?

Monday July 9 2012

1. Article 54 of the Directive permits investments of 100% of Nav in transferable securities issued by certain issuers, e.g. sovereigns, where a minimum of 6 different issues are held and no more than 30% of Nav is in any one single issue. However, please also note that the diversification should be applied on the Net Assets of the UCITS and not on the Gross Assets of the UCITS. Furthermore, exposure taken via derivatives to the same assets, e.g. bond future contracts, re-investment of cash collateral etc. must also be taken into account when calculating the 100% limit mentioned above.

2. For the calculation of the Global Exposure for a Fund of Funds, the look through approach is not compulsory under the current guidelines. As an alternative the UCITS is also permitted to treat the Nav of the target fund as equity and use it as a substitute in the calculation of global exposure, particularly when the VaR approach is being used. N.B This method can only be used where the risk management function can demonstrate this does not lead to an inaccurate picture of the Fund of Funds. The method chosen by the UCITS to calculate their global disclosure should also be disclosed in the prospectus.