UCITS Share Classes

Of Relevance to:
UCITS Management Companies

UCITS Share Classes

ESMA has been turning its attention to UCITS share classes and has issued a Discussion Paper – 2016/570 – on the matter (it had published a shorter Discussion Paper – 2014/1577 – on the subject in December 2014).

As a reminder, unlike UCITS sub-funds in which each such sub-fund is essentially a separate fund with its own investment objectives and segregated assets, a share class is simply a different type of share or unit belonging to the same UCITS/sub-fund as applicable. Share classes can exist for a variety reasons such as reflecting different classes of investor e.g. retail vs. institutional, different fee structures, minimum investment, currency etc.

ESMA notes that, in the absence of any guidance in the UCITS Directive, there is no common legal or regulatory framework for share classes throughout the EU, and indeed in certain jurisdictions they are not permitted. In addition, comment is made that ESMA had also identified where different share classes could potentially have different investment strategies.

With this in mind, ESMA is proposing the following high-level principles to be followed when setting up different share classes:

  • Common investment objective. Share classes of the same fund should have a common investment objective reflected by a common pool of assets.
  • Non-contagion. Procedures should minimise the risk that features that are specific to one share class could have an adverse impact on other share classes of the same fund.
  • Pre-determination. All features of the share class should be pre-determined before it is set up.
  • Transparency. Differences between share classes of the same fund should be disclosed to investors when they have a choice between two or more classes.
    The Discussion Paper acknowledges the need to introduce transitional provisions for those share classes not complying with the principles.

Comments are invited by 6 June 2016.

The paper advises ESMA expects to take further steps on share classes of UCITS by the end of 2016. ESMA has not taken any final decision on the type of instrument it may issue on the topic of share classes, but it seems probable that it will issue an ‘opinion’ addressed to the EU institutions or national competent authorities.

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