BlueCrest to close UCITS fund with platform operator Merrill Lynch

Discussion in 'Professional Trading' started by ASusilovic, Oct 27, 2010.

  1. BlueCrest Capital Management is to close its Bluetrend UCITS fund on November 30 and return around $600 million in capital to investors. The move highlights the teething problems that some hedge funds and platform operators are experiencing in complying with still evolving UCITS regulatory practices.

    BlueCrest took the decision in conjunction with UCITS platform operator Merrill Lynch Bank of America after finding that tracking error, currently around 3.5% and within the prospectus guidelines, is likely to increase. It is understood that a key factor in this is the UCITS constraints on total NAV exposure to government bond futures. Should the off-shore fund increase such exposure the limits on the UCITS offering would see tracking error grow further.

    “Merrill Lynch Investment SolutionsLIS and BlueCrest will work together, within the appropriate regulatory frameworks, to offer alternative investment options, including other sub-funds available on the BofA Merrill Lynch UCITS platform and where possible, direct investment into the offshore domiciled BlueTrend Fund managed by BlueCrest,' BlueCrest said in a statement sent to investors.

    Industry watchers expressed surprise that a managed futures offering should have such pronounced tracking error between the off-shore and UCITS funds. However, one executive remarked that index construction and regulatory interpretations are still evolving, and noted that this can be expected with a new asset class like UCITS.

    Ironically, Bluetrend’s performance in both onshore and off-shore formats has been strong. Its biggest exposures this year have been to fixed income with some exposure to energy with new contracts being added in short rates and emerging market equities. The decision of BlueCrest and Merrill to withdraw the fund may not affect more directional funds such as the DB Platinum IV - dbX Systematic Alpha Index Fund based on the Winton Futures Fund. More directional funds are thought to be less constrained than funds trading interest rate spreads involving large notional positions.

    The BlueTrend UCITS fund launched in 2009 but stopped taking new subscriptions in April 2010. Its upcoming closure follows a period of heavy investment by BlueCrest in systems and infrastructure for its systematic funds group headed by Leda Braga. The firm’s systematic trading arm, with $9 billion in AUM, is not expected to be affected by the move to delist the UCITS offering.

    UCIT regulatory "practices"... :cool: