Over the last decade, the UCITS (Undertakings for Collective Investments in Transferable Securities) product has enjoyed tremendous success globally. Within Europe, the growth of UCITS has been fueled in part by not only product innovation but the introduction of the Euro in 1999. In the face of the potential disintegration of the Euro in the midst of a sovereign debt crisis in one or more European countries, management and boards of UCITS should consider a variety of potential risks and scenarios as part of an effective risk management program. This DechertOnPoint will highlight certain key considerations for UCITS in evaluating and planning for a potential complete or partial break-up of the European Monetary Union (Eurozone).

UCITS Risk Management

Overview of the Risk Management Process

The UCITS Directive establishes the obligation for the home Member State of a UCITS to require UCITS to have adequate procedures and internal control mechanisms in place, including with respect to principles for the measurement and management of risks associated with positions in derivatives. Generally, UCITS are required to implement a documented risk management process that is designed to identify and manage material risks to which UCITS are exposed in relation to the performance of the activity of collective portfolio management. Recent market events and the pending uncertainty with the Eurozone have emphasized the need for a comprehensive review of UCITS risk management procedures to identify and manage all materials risks.