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30 March 2015

ALFI response to ESMA’s discussion paper on UCITS share classes

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Issues addressed in the discussion paper relate to the definition of a share class, the different types of existing share classes in the various Member States of the EU and the possible approaches to developing a common understanding on the share classes that should be permitted.

Share classes that offer differing degrees of protection against interest rate risk (i.e. duration hedged share classes) comply with the principle of having the same investment strategy. The goal of the proposal is to only allow standard differentiation features between share classes and forbid different exposures that would lead to different “results of the investment strategy”. Other products such as duration and Beta hedged share classes have a real beneficial hedging effect for their investors to protect them against an interest rate rise or negative performance of the overall market (i.e. to follow the principle of hedging protection).

ALFI therefore disagrees with considering as not compliant per se share classes that offer differing degrees of protection against some market risks such as interest rate or volatility risk, and share classes that awere exposed to the same pool of assets but with different levels of capital protection and/or payoff. It must be noted that existing share classes based on that profile have been set up to respond to investors’ requests and their investment profiles, and are always authorised under strict conditions. Moreover, ALFI is of the view that there should be no exhaustive list of compatible share classes since the creation of share classes responds to requests from investors. It is essential that the asset management industry be able to continue to create products in line with investors’ investment profiles and needs. A case by case assessment when proposed new share classes are reviewed by authorities based on the ESMA principles should be sufficient.

Full response

© ALFI - Association of the Luxembourg Fund Industry

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