CTA giants under threat from ESMA proposal, says Alt Ucits manager

Major proposed changes to the way commodities indices can be used in Ucits-compliant vehicles could force some of the largest CTA funds in existence to dramatically change their approach.

That is the view of Alternative Ucits expert Louis Zanolin of Geneva-based asset managers and index providers Alix Capital.

Zanolin said a consultation paper presented by the European Securities and Markets Authorities (EMSA) would lead to a significant change in the way managed futures/CTA funds can use commodity index replication methods.

Commenting on the proposals, Zanolin said: ‘Asset managers will need to make significant changes to ensure compliance, which is key if the sector is to continue its recent growth trend.'

'CTA managers will not be able to cope with these new regulations in their current form, however there are options available.’ 

According to Zanolin, seven of the 10 largest Ucits CTA funds currently use commodities index replication techniques.

However, under the ‘Guidelines on ETFS and other Ucits issues’ consultation paper published in July, commodities indices need to be ‘transparent and replicable’ to allow the fund to continue as a Ucits-compliant vehicle.

This, Zanolin said, would affect a large number of funds using short-term rebalancing strategies, as they would fall out of the remit of the regulation.

In addition, the way in which fund managers calculate and compile their indices would be made public. A move which Zanolin said could cost some fund managers their competitive edge.

The CTA sector has seen a dramatic growth over the past four years, according to Zanolin. Over this period the number of funds has grown from nine to 55 funds with €6.09 billion in assets under management.