The European Securities and Markets Authority (Esma) last week called for all hedging arrangements at share class level – with the exception of currency risk hedging – to be set up as separate funds or sub-funds.

The opinion, published on January 30, discusses the extent to which different types of share classes of the same Undertakings for Collective Investment in Transferable Securities (Ucits) funds can differ from one another.

It targets four key areas in which Esma believes more consistency is required on the issue: a common investment objective, non-contagion, pre-determination and transparency.

Will Esma's opinion hit hedging hard?Perhaps most importantly, the opinion sheds light on the use of derivatives within share classes. According to the opinion, Esma will still allow for currency risk hedging on the basis that it enables investors from member states with differing currencies to "participate…in the same performance...