Most of the investment funds available through AMFIE are non-complex investment funds, which must comply with regulations for the legal protection of investors. However, there exists another category of investment fund that is subject to fewer regulations regarding investment choices and can invest in a wider range of investment categories. These funds are called complex investment funds. In addition to listed shares and bonds, complex investment funds can invest in:

  • Commodities
  • Impact investments, such as microfinance
  • Direct real estate
  • Private equity


Complex investment funds can refer to two types of funds:

  • Structured investment funds, and
  • Alternative Investment Funds (AIFs), i.e., investment funds that do not fall within the scope of the UCITS directive: non-UCITS hedge funds, private equity investment funds and other complex funds.


What are structured funds?

Structured funds are a type of investment fund in which the expected returns are entirely or partially linked to the performance of an underlying, depending on certain pre-defined market conditions. The underlying can be a share, a basket of shares, an index etc.

This type of fund has:

  • a fixed maturity, and
  • will often offer full or partial capital protection at maturity.

When considering a structured fund, it is important to look at the scenarios used as a basis for performance calculations, along with the terms of repayment.


What are non-UCITS hedge funds?

Non-UCITS hedge funds, as their name suggests, are not subject to the stringent regulations that govern UCITS. Instead, they are governed by investment rules that are less strict in terms of diversification, asset types in which they can invest and liquidity constraints.

Lower liquidity constraints mean that non-UCITS hedge funds often adopt strategies that are among the least liquid of all alternative investments. Many non-UCITS funds, and particularly those adopting arbitrage strategies, will provide only monthly liquidity for subscriptions and quarterly liquidity for redemptions, often accompanied by a one-month notice period.


Aside from being subject to less restrictive regulations, non-UCITS hedge funds pursue the same objectives as UCITS invested in hedge funds:

  • absolute performance decoupled from that of an index;
  • positive performance irrespective of market conditions; and
  • low volatility.

Including non-UCITS hedge funds in a portfolio can increase its level of diversification because their performance tends not to be in direct relation with that of equities and bonds.

Non-UCITS hedge funds can also aim for higher risk-adjusted returns than UCITS hedge funds because they are subject to fewer regulatory constraints. However, as discussed above, investors should bear in mind that this can lead to lower liquidity.


What are private equity funds?

Private equity funds, as their name suggests, invest in companies that are not listed on a stock exchange. Over a period of several years, they will support the development of the companies in which they are invested, with the objective of selling them to obtain a capital gain. Private equity funds are closed-end funds, meaning that they will be wound up after a fixed amount of time (usually a ten-year term).

Private equity funds give investors access to an asset class that can potentially offer higher returns than listed equities. However, these investments carry a high level of capital risk together with low levels of liquidity.

Since there are no stock market listings, it can be difficult to estimate the value of this type of investment until it reaches maturity. Investors in private equity funds often must wait several years before seeing any positive results. The first few years of the fund may result in negative performances as a portfolio of companies is gradually acquired. If the fund is successful, growing capital returns will eventually mean that investors receive these profits in the form of dividends.


What are other complex funds?

Other complex funds can be invested in a wide range of assets such as wine, artwork, commodities, or real estate. These funds do not fall under the regulations governing UCITS and their liquidity may be strongly impacted by adverse market conditions.

What risks should be considered when investing in complex funds?

While complex investment funds can contribute to diversifying a portfolio and provide interesting opportunities for investors, they also carry more risks than non-complex investment funds, in part because the rules they must adhere to are not as strict, meaning that investors have less legal protection. The following is a list of some of the major risks an investor will face when investing in complex funds:

Management risk: The risk that the management team will be ineffective or will underperform. Fund managers positioned in the same asset class with the same investment strategy can be compared using their risk-adjusted returns. However, the comparison must take place across an entire market cycle.


Market risk: Market risk is the possibility of experiencing losses as a result of factors that affect the performance of investments in the markets. It may increase as a result of changes to interest rates, foreign exchange rates, commodity prices, geopolitical events or recessions. While diversification does not eliminate market risk, it can mitigate the specific risk linked to the performance of a particular security and it is therefore important to ensure that investments are diversified across different asset classes and markets.

In the case of a complex investment fund, performance will depend a great deal on the markets in which it is invested together with the strategies it has applied.  While private equity funds, which invest in unlisted assets, are not exposed to market risk as such, they are exposed to financial, industrial and entrepreneurial risk through the companies in which they invest. In addition, market prices of publicly listed equities will impact the realization value of each portfolio company when it is sold.


Liquidity risk: Complex funds tend to offer less liquidity than traditional UCITS funds due to the types of assets in which they invest, which can be difficult to trade. Certain types of complex funds, such as private equity and real estate funds are usually closed-end funds, meaning that the investor cannot withdraw before maturity.


Currency risk: This type of risk will depend on the currency exposure of all underlying investments in the fund.

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