UCITS funds – which are designed to be sold across European borders – have been through several versions as policymakers have sought to build a large, liquid fund market in recent years. The fourth version is designed to come with a new, simpler prospectus, known as a Key Information Document, to help remove some existing problems with UCITS funds. The new structures are designed to be implemented by July 2011.

The third iteration of these funds can use derivatives to enable their managers to take short, as well as long, positions. As a result, many hedge fund managers have issued "hedge fund lite" products inside UCITS wrappers. Such vehicles also claim to offer high standards of liquidity and transparency, although there are concerns that proposed changes to how their valuations are measured could make these funds more risky than some investors may realise. .

In its survey of 50 cross-border asset manager firms in Europe, PwC said that 58 per cent of respondents, when asked about the significance of the Key Information Document, said they had not yet considered the cost implications of changes to their systems of controls.

The survey was entitled, UCITS IV: Time for change.

“The KID has far wider reaching implications than asset managers currently realise. It changes the way in which funds are perceived and will potentially leave some asset managers with gaps in their product ranges,” said Thierry Blondeau, partner, PricewaterhouseCoopers Luxembourg.

“For those that have not considered the cost and time implications of these changes, this could result in some nasty surprises come July when the European Commission is expected to adopt implementing measures. Managers must start to adapt their operating systems, and fast, or they risk being caught out,” he said.

Some 60 per cent of European asset managers surveyed are concerned the level of detail required within the KID may not be sufficient to enable investors to make sound investment decisions. Some 30 per cent of respondents felt it was quite or very unlikely that the KID would result in a level playing field, an additional 22 per cent being undecided on whether it will contribute or not to a level playing field.