Despite the new 'Undertaking for Collective Investment in Transferable Securities IV' directive not bringing the operational cost reductions many European investment fund asset managers assumed, they are still finding benefits around business model alignment, a new Ernst and Young survey has found.

In a poll of 98 European investment fund participants, 49 per cent said that business model alignment with UCITS IV is the biggest driver for improving their operating model. This compared to 37 per cent that identified cost-efficiency.

"Many fund managers assumed that UCITS IV would offer significant opportunity to reduce operational cost," Crispin Rolt, Ernst and Young's UCITS IV leader, said. "However, as asset managers look at UCITS IV in more detail, in many cases they realise that the cost reduction opportunity is of a smaller magnitude than initially expected.

"The focus has turned to using UCITS IV to optimise the operating model and fund ranges, to align better with the business strategy of the organisation. The investor will still benefit and by pooling funds it is anticipated that there will be opportunity to reduce some of the expense borne by the fund."

The realisation that cost reduction will not be the biggest driver for UCITS IV was also seen in managers' responses to what drove their decision to optimise their fund range: 43 per cent identified operational efficiency as their top driver, compared with 29 per cent that said cost reduction and 28 per cent that identified distribution benefits.

With 18 months before the July 2011 implementation deadline, a fifth of the funds polled have not started work relating to the new UCITS IV. Less than a third has already started work on the path to implementation either by appointing a steering committee or conducting high level analysis.

"Fund managers really must set aside time to consider and plan for UCITS IV and realise the opportunities it offers, particularly around operational efficiency and achieving improved business strategies," Mr Rold stressed. "It is essential that work starts sooner rather than later if asset managers are to gain the competitive edge in 2010 and beyond."