This essay appeared in Citywire Selector on June 13, 2011.
‘Tis but thy name that is my enemy;
Thou art thyself,…O, be some other name!
What’s in a name? that which we call a rose
By any other name would smell as sweet;
So [Newcits] would, were [they] not [Newcits] call’d,
Retain that dear perfection which [they] owe
Without that title. [Newcits], doff thy name…
– (Words of Juliet [with adaptations]
from Romeo & Juliet, Shakespeare)
Efama is steadfast in protecting the integrity of the Ucits brand. The recently published report on the ‘so-called Newcits phenomenon’ makes this clear (though I must say it could have been quite a bit shorter). Ultimately, the association has in mind the best interests of the asset management industry and its investors, it’s efforts are well intentioned.
Ucits has grown into a worldwide brand with a robust regulatory framework that is consistently applied across all Ucits and Ucits management companies. The brand has been tremendously successful by all accounts and must be protected particularly as interest in the vehicle grows.
The term ‘Newcits’ has created some real headaches for the folks at Efama; they fail to see the cleverness of the name and feel strongly that it is a blemish on the Ucits brand. The Newcits label was born with the best intentions to describe a rapidly developing phenomenon. It was created not with the manufacturers of investment products in mind but the buyers of those products.
So what happens if Efama gets its wish and the term disappears overnight? My obituary would begin: ‘As we lay the term ‘Newcits’ to rest, it is time to reflect on its birth, its short though celebrated life and the eventual controversy that led to its demise. Like many complicated characters, Newcits was misunderstood…’
Objections to the Newcits term
Topping Efama’s list of concerns regarding the term Newcits is brand protection. The recent report draws on a range of statistics, exhibits and historical analysis in discussing its view of the term – all of which, while interesting, are unnecessary for Efama’s central argument. In reality, the 17-page report could have been reduced to two (including the cover page). Or, even more simply, it could have stated: ‘We think the term Newcits sounds and looks too similar to Ucits. The integrity and consistency of the Ucits brand and regulatory framework is crucial for the long-term sustainability and growth of the fund industry in Europe. The use of the term Newcits, as a derivative of Ucits, is confusing and potentially misleading. We ask for the cooperation of the media, market participants and their independent consultants [that’s my role, see] to discuss perspectives and identify a more suitable term.’
The closest I can find in the Efama report to the spirit of the above is ‘the term Newcits incorrectly indicates the creation of a new type of product or a legal sub-category that is clearly defined and quite different from other Ucits’.
What Efama is not alone in missing is that there is more to what is going on than just terminology. The very foundation of investing that was established in the ‘modern’ era (modern portfolio theory, efficient market hypothesis, etc) is being reconsidered. Liquidity is now king. Approaches to asset allocation, investment selection and implementation are being turned on their heads. Investors, both professional and otherwise, need to have the tools and perspective to properly understand the changing world.
There is a new generation of funds, regardless of how they are labelled, and how to analyse and monitor them is important. That the task is performed by professionals with adequate tools is in everyone’s best interest.
The need for the Newcits label
The term Newcits was created in recognition that the recently accelerated evolution in the asset management industry demanded a new way of understanding the investment environment. It was made clear that the traditional/mainstream segments of the fund industry were being increasingly influenced by exposure to what had been alternative.
Two types of investment were no longer easily marked by the vehicle in which a manager was implementing his or her investment views. The vehicle, or type of fund structure, and the underlying investment strategy were no longer synonymous. Ucits became a garden rich with opportunity for investment strategies across a broad spectrum.
The intentions and needs of the buying community were in mind when it was created. As more players began launching Ucits vehicles, including traditional hedge fund shops, a need to group a certain set of funds with unique characteristics and objectives arose. These characteristics and objectives were largely new in terms of what had been available in the Ucits vehicle. Without being properly identified, the risks and opportunities to investors in these funds would be less well understood. Newcits is used as a means to group these funds for comparison and analysis.
Efama correctly recognises the convergence process when it states in its report: ‘For many years, the best practices and innovative implementation of strategies and portfolio management techniques have been cross-fertilised between the hedge fund and traditional, long-only asset management communities to meet the needs of institutional clients. In recent years this convergence has also been taking place within Ucits.’
This ‘convergence’ within Ucits was the driver of the term Newcits. It was used to indicate something new was taking place inside of Ucits funds. In creating the term, no one suggested that the integrity of the Ucits structure or regulatory effectiveness was in question. It was a matter of recognising that the convergence had reached a level of critical mass and that the Ucits vehicle, thanks to its breadth of application and flexibility, was the vehicle of choice for that coming together.
So where does that leave us? Undoubtedly we need a way to describe this broad group of funds that stand in contrast to ‘plain vanilla’ strategies in the market. Their underlying categories, such as CTA, L/S, global macro, etc, are helpful but do not give a satisfactory means of understanding the broad group of funds. People in this industry want a term – Newcits fits a need.
The choices available, ‘absolute Ucits’, ‘Ucits hedge funds’, ‘alternative Ucits’ and ‘Newcits’ all are problematic. Anything with ‘Ucits’ in the name presents similar issues to Newcits. ‘Absolute’ has its own set of problems, ‘hedge funds’…well they are not hedge funds by definition are they? ‘Alternative Ucits’ – if there is an alternative, then there must be a traditional and Efama’s argument is that it is a homogeneous group. ‘Newcits’…well?
What we are ultimately trying to describe are investment strategies that were historically alternative and have been made available through a ‘mainstream’ investment vehicle to a broader audience. How about ‘mainstream alternatives’, or ‘MainAlts to tighten it up a bit?
So what shall we call Newcits in future, any ideas?