Fund managers will overlook eastern European countries when seeking domiciles for funds once an EU directive for cross-border consolidation is in place, despite potential cost savings, a study published Monday said.
Fund managers preparing for the UCITS IV directive, due to come into force in 2011, said such low-cost jurisdictions might lack the appropriate skills and expertise and have a "limited track record and reputation", according to research conducted by custodian RBC Dexia and accounting firm KPMG.
The Undertakings for Collective Investment in Transferable Securities (UCITS) are a set of European directives that allow asset managers to market funds throughout the EU on the basis of a single authorisation in one member state.
The final text of UCITS IV was voted on by the European Council in June and will come into force in 2011. The directive is expected to drive consolidation in the fragmented European investment fund industry and boost the industry's competitiveness by cutting costs.
"Despite the emergence of a number of potential low cost fund centres in recent years a range of factors appears to have persuaded fund managers that low cost centres are not a desirable choice," the research said.
Luxembourg emerged as the most desirable jurisdiction to base UCITS management companies and administration, as well as to consolidate assets from cross-border fund mergers, which the directive is expected to encourage.
The grand-duchy is closely associated with the development of UCITS products and maintains a "strong brand image" among continental European and non-EU investors in markets such as Hong Kong, Taiwan and the Middle East.
Ireland, which has created a UCITS-friendly framework, was the second most popular jurisdiction.
The research also found managers were considering investments in micro-finance institutions to respond to growing interest in the asset classes for diversification.
"But any future extension of UCITS investment powers should carefully assess any likely increase in risk within the context of protecting the hard won strength and reputation of the UCITS brand," it said.
The survey polled 52 asset managers with UCITS funds established in their principal location in the European Union (EU) as well as in the cross-border business centres of Luxembourg and Ireland.
