We noted recently that so-called UCITS, which stands for "Undertakings for Collective Investment in Transferable Securities," are all the rage in Europe. Proponents of these securities liken them to mutual funds, which conjures up warm and fuzzy images of highly regulated, fairly safe investments suitable for the masses.

But there's a reason hedge funds are setting up UCITS in droves: they are seen as a way around potentially draconian new rules that would restrict hedge funds (hedge fund news). One danger to some is that these "hedge fund lite" products are seen as having all the benefits of mutual funds (mutual fund news). In times of market turmoil, investors may not be able to redeem quickly. In some quarters, UCITS are seen as a fix to the liquidity problem that hedge funds ran into once the financial crisis hit home.

The majority of all UCITS will probably work as advertised. But just as some money market mutual funds, which were supposed to be safe, ran into issues recently, so will a few UCITS. A minority of these funds will be mere wrappers on hedge fund strategies that will never be considered highly liquid. It's unclear how many American operated firms in Europe are jumping on the bandwagon. 

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