UCITS Guidelines

The below is copied from the  Financial Engineer website.

Liquid Securities only

  • 0% Exposure to Commodities
  • 0% Exposure to Property / Real Estate
  • 0% Exposure to Private Equity
  • 0% Exposure to illiquid securities

Risk Management

  • VaR of a fund cannot exceed 20%, with 99% confidence level and 20 days holding period; minimum historical observation period of 1 year.
  • Stress testing for derivatives must be carried out at least once a month.
  • Daily risk monitoring is carried out to ensure compliance with fund restrictions.
  • Fund Managers are financially liable for any losses incurred from any advertent breaches of the Fund restrictions.


  • A Fund cannot borrow more than 10% of the NAV
  • Additional exposure is available through Swaps (no Recourse)

Issuer Control Limits

  • A Fund cannot hold more than 10% of any one companies issued stocks, bonds or money market instruments, including through derivatives

Concentration Limits

  • Positions of same issuer must be less than 10% of NAV (can be up to 25% of NAV if a credit institution, or up to 35% if government backed)
  • Total aggregate positions as above that are greater than 5% and less than 10%, must be less than 40% of NAV
  • Cash deposits with one credit institution must be less than 20% of NAV
  • Derivatives from the same issuer must be less than 5% of NAV (10% if the counterparty is a credit institution)
  • Collateral reduces the exposure to an entity
  • Aggregate exposure to a given entity across all the above (transferable securities + deposits + derivatives – collateral) must be less than 35% of the NAV


  • Daily marked to market
  • Daily or weekly liquidity

Investment Restrictions

  • Physical short-selling is disallowed; short exposure can be obtained through single-stock swaps with limited counterparty risk
  • Warrants (direct or through derivatives) must be less than 5% of the NAV

Corporate Governance

  • All directors of a Fund must be independent of the Investment Manager
  • An independent Auditor, Administrator and Custodian must be appointed
  • Independent Risk Reporting must be provided


  • Underlying holdings
  • Semi-annual and annual reports
  • Prospectus and KIID must give particular risk warnings
  • KIID must give risk/reward indicator


About alundarwood

I am involved in market risk and performance analytics in the financial services industry. My expertise includes portfolio management, fixed income analysis, advanced derivative pricing and building software valuation models.
This entry was posted in Risk management. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.