Sponsored Statement | BNY MELLON Innovation And Diversification UCITS funds expand in Asia, the Middle East and Latin America T he European Commission’s UCITS Directive has estab- managers through UCITS fund ranges, a concern for investors lished the only truly globally recognized and distributed that emerged over the last five years or so is the impact curinvestment fund ranges. Asset managers distributing rency fluctuations can have on performance returns - the risk UCITS (Undertaking for Collective Investment in Transferable that exists between the base currency of the fund and the local Securities) fund ranges post-2008 currency of the investor. Fund face an increasingly difficult envimanagers have for years offered ronment in which to remain comdifferent share classes to attract petitive and profitable. Challenges new capital; however, these have include maintaining or improving usually been unhedged and were on returns from conventional asset vulnerable to this currency risk. classes (such as equity and fixed “As a result of concerns from income), increasingly sophisticated investors, coupled with their and savvier investors, and perdesire to raise assets, fund manhaps the most troublesome task, agers have looked to mitigate the the constantly changing regulacurrency risk for their investors by John Murray Shamik Cholera tory environment and the scale of launching hedged share classes,” reform, including Solvency II, Altersaid Shamik Cholera, Head of KEY FEATURES OF CURRENCY native Investment Fund Manager BNY Mellon’s Currency AdminisADMINISTRATION INCLUDE: Directive (AIFMD) and The Doddtration Business Development for • Leverages capabilities of one of the world’s Frank Act. These factors make The Americas. largest custodians and fund administrators yet is for a period of transformation that Hedged share classes have the service provider agnostic the asset management community ability to assist a fund manager • Provides a cost effective way of managing a needs to address in the months in increasing client assets raised multi-currency share class hedging program • The asset manager retains control of the share and years ahead. from foreign markets by attracting class hedging program’s parameters “Fund promoters continually investors who are sensitive to cur• Reduction of operational risk within the asset innovate to strengthen their brands; rency fluctuations. This is achieved manager primarily through diversification by reducing the effect of currency away from traditional asset classes fluctuations between the base curinto new and alternative ones,” says John Murray, Head of BNY rency of a fund and the currency of the investor. An investor Mellon’s Currency Administration business in Europe and Asia. “In in a hedged share class will receive a return that will be closely addition to constantly innovating new products, they are seeking correlated to the performance of the base currency of the fund. to distribute their funds into new markets, such as in Asia, the The success of UCITS funds will continue to be challenged in Middle East and Latin America.” the coming years, as they grapple with the factors mentioned The distribution of cross-border investment funds continues to above together with increasingly stern competition from local grow at a phenomenal rate fueled by a clear trend for a greater fund industries and the fear of internationalization within those number of UCITS funds being sold into more jurisdictions by more local markets. BNY Mellon’s Currency Administration business fund promoters than ever before. The number of fund managers provides support for asset managers’ currency share class based in Asia, the Middle East and Latin America establishing hedging programs that make it possible for the asset manager UCITS fund ranges has increased dramatically as a way to raise to offer currency share classes to investors without taking on assets internationally as well as in local markets. Though Asia the burdensome task of administering their program in-house. is currently the most productive market for distribution of UCITS In turn, this will allow asset managers to focus on their core funds outside Europe, the Middle East and Latin America will offer competency of managing money while reducing the operaimmense opportunities within the next three to five years for fund tional risk and technology costs associated with supporting a distribution expansion. Those large fund promoters that have, or share class hedging program. are establishing a UCITS fund range are doing so with a clearly For more information on Currency Administration, please contact: defined global distribution strategy. John Murray at [email protected], or As international markets increasingly opened to foreign fund Shamik Cholera at [email protected] Material contained within this article is intended for information purposes only. It is not intended to provide professional counsel or investment advice on any matter, and is not to be used as such. No statement or expression is an offer or solicitation to buy or sell any products or services mentioned. The views expressed within this article are those of the contributors only and not those of The Bank of New York Mellon or any of its subsidiaries or affiliates, and no representation is made as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this presentation.