The Impact of UCITS IV Directive on European Mutual Funds Performance

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In this paper, we examine the impact of the UCITS IV Directive on the performance of European mutual funds. In a sample of 1435 equity funds from December 2001 to December 2013, we empirically investigate the effects of the economies of scale on the relation between size and performance. Using panel regressions with multilevel models, we find that European funds appear to benefit from gains related to size and to not encounter diseconomies of scale. The post-UCITS IV period appears to be a new regime with a significant quadratic and positive convex relationship between size and performance. This observation clearly indicates that there is a premium for the largest funds because it is precisely the expected objective pursued by the Directive. Nonetheless, specific characteristics of the European fund family structure burden performance. Despite the intention of regulators to provide a costless and favorable environment, European fund families are highly diversified and composed of a large number of small-sized members and thus achieve overall positive spillover effects.

Author(s):

Veasna Khim    
CEREFIGE University of Lorraine
France

Hery Razafitombo    
CEREFIGE University of Lorraine
France