UCITS: ESMA issues opinion on share classes

Under the UCITS Directive, UCITS can offer different share classes to investors, but the Directive does not prescribe whether and to what extent share classes of a given UCITS can differ from one another.

ESMA has identified four high-level principles that should 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 – UCITS management companies should implement appropriate procedures to minimise the risk that features specific to one share class could have a potentially adverse impact on other share classes of the same fund;
• pre-determination – all features of the share class should be pre-determined before the fund is set up; and
• transparency – differences between share classes of the same fund should be disclosed to investors when they have a choice between two or more classes.

ESMA recommends that share classes established prior to the opinion which do not comply with these principles should be allowed to continue in order to mitigate the impact on investors. Such share classes should be closed to new investors within six months of the publication of the opinion, and for additional investment by existing investors within 18 months of publication.