More conservative measure required for UCITS funds
16 June 2009
Written by Sophie Baker
Proposals by the EU to control the risk of UCITS funds could
leave them more risky than hedge funds, as they will not protect investors
from the risk of a huge loss of investment value, says EM Applications.
The proposals were made in a consultation paper by the Committee of European
Securities Regulators (CESR), which suggested new technical guidance for
the risk measurement of UCITS funds.
The notion of “relative VaR” lies at the heart of the problem,
EM Applications says, which would render a UCITS fund twice as risky as
a technology fund. Instead, EM Applications recommends that a more conservative
measure, such as “active VaR”, be employed.
The investment risk solutions supplier says the consultation paper and
suggestions are “as though the EU has got involved in setting road
speed limits and, taking account of improvements in car safety and the
desire for fewer accidents they’ve come up with new rules so that
the maximum speed limit is 50mph or twice what it used to be”.
The CESR paper also, EM Applications says, represents a U-turn in terms
of the historical period that may be used for VaR calculations. The original
directive stated “no more than one year”, and now it says
it is to be “at least one year”.
Peter Ainsworth, managing director of EM Applications, said: “While
the CESR paper makes some good technical points, it seems more focussed
on being technically correct than on protecting investors. Allowing UCITS
funds to be significantly more risky than hedge funds puts the UCITS brand
at risk and is bad for investors. Relative VaR needs to be ditched and
replaced with a more conservative measure.”
