Press Releases

LMA responds to ESMA's Call for Evidence on the Review of the UCITS Eligible Assets Directive

The LMA has responded to ESMA’s Call for Evidence on the review of the UCITS Eligible Assets Directive.

Our response focuses on the treatment of loans under the UCITS EAD and recommends that it should be possible for loans to constitute Eligible Assets.

Nicholas Voisey, Managing Director – LMA, said
"Loans, both direct and indirect, such as through CLOs, should be included as eligible assets for UCITS based on their relative lack of complexity as a debt product and their proven reputation of providing investors with attractive returns, low volatility and low loss rates, all of which are important factors from a retail investor perspective."

Key points:

Permitting UCITS to invest in loans -

• Help address current divergence between EU Member States over the extent to which loans constitute Eligible Assets;
• Assist UCITS to achieve a greater spread of asset types and greater diversification of exposure to underlying counterparties;
• Permit retail investors that wish to gain exposure to loans to do so through a secure and highly regulated product (i.e. a UCITS);
• Improve liquidity. Funds that invest in loans can be structured to increase liquidity;
• Align with the European Commission's policy approach in its AIFMD II legislative proposal which was to recognise and support the benefits that non-bank financing can bring to the wider economy;
• Prevent the regulatory arbitrage that could occur if some EU Member States (or non-EU jurisdictions) permitted certain types of retail funds to invest in loans whilst the EU prohibited this for its main retail fund product, the UCITS.

Loans -

• Are not a complex product from an investment perspective. Unlike more complex products that are already eligible for UCITS investment, loans do not require a highly sophisticated investment strategy in order to generate returns;
• Present an attractive investment and risk profile. Whether in terms of average return, income generation, volatility, default rates or recovery rates, loans show themselves to be an attractive investment, particularly when compared to other UCITS-compliant products.