Utilising novel registration process allows UCITS fund managers to register funds in South Africa without changing their derivatives policy
Zeidler Legal Services, a technology-driven law firm with a focus on advising the asset management sector, has successfully registered an Irish UCITS fund in South Africa for a US fund manager in a ground-breaking process that has the potential to increase UCITS investment from the country and make it a far more attractive destination for investment fund managers.
South Africa has strict regulatory restrictions on leverage and the use of derivatives in an investment fund. Registering a UCITS fund as a Retail Investor Hedge Fund means that the fund in question has more flexibility and removes the need to alter its prospectus.
Zeidler is one of only a handful of firms to have used this relatively recent procedure for such a registration. Doing so puts it at the forefront of cross-border UCITS registrations into the South African market.
Arne Zeidler, Managing Director and Founder of Zeidler Legal Services said: “As a firm, we are focused on providing innovative solutions for our clients, including helping them expand into new markets.”
Historically, the South African market has been less attractive for UCITS funds because the regulatory requirements are more restrictive than the European UCITS regime. Under the Collective Investment Schemes Control Act (CISCA), South African retail investment funds can only use derivatives for efficient portfolio management and the use of leverage is prohibited.
In contrast, UCITS offer wide-ranging investment powers, including in derivatives, and there is no limit to the amount of leverage they can utilise. This has meant most UCITS are, as they stand, unsuitable for registration in South Africa.
Zeidler continues: “Fund managers have therefore been reluctant to register UCITS in South Africa. Even those funds which currently comply with these tighter prudential regulations may not wish to register there because this closes off future options if they might need to use derivatives for investment purposes further down the line. On top of that, rewriting the prospectus is inconvenient and expensive.
“By utilising this relatively new route – which was only launched in 2015 – we have enabled our client to register an umbrella UCITS in a potentially lucrative new market. We believe that the increased flexibility offered by this option will mean that South Africa becomes a more attractive market for UCITS managers globally and will increase investment opportunities in the region, so will be beneficial not just for the wider funds industry but also for South Africa.
“One of our strengths is that we specialise in registering funds all over the globe – the client has one point of contact, rather than having to negotiate with multiple local law firms. This fund registration reinforces our ability to handle innovative cross-border work that opens major new markets for our clients.”