"If Europe crashes, and sterling gets devalued against the euro, then things will be very tough. That is when UCITS III will come into play," the manager says.
Although Lees is not using derivatives as a main part of his portfolio at the moment, in the event of another downturn he will make use of them as protection, he says.
"A future slump will be different from 2008, when you just had to watch your portfolio get hit," he says.
"UCITS III means we can invest in a number of private companies very quickly. We would invest up to five per cent of our portfolio, so long as we know a company’s management, and have a third party evaluation. The private companies we are interested in tend to be from the resource sector," he adds.
Lees says that his institutional background has given him a good grounding in understanding risk, and it was the passing of the UCITS directive which actually lured him away from his previous company, Deutsche Asset Management, and to a retail fund group.
Speaking on the strength of the UK, Lees believes it is the best geography to be invested in. He points to its strength in industry – despite factory closures in the midlands and beyond – saying the UK is the world's seventh largest manufacturer.
"International buyers can see that the best companies in the world are listed in the UK, and, as sterling is being pummelled, they can get them at a very cheap price. As a stock picker this is a very exciting market,” he says. “After a decade of negative returns from equities, the next decade is lining up to be very exciting," he adds.
The manager also likes the UK because he says can investors can play any theme from here. This shows through in Lees' portfolios; both are laden with investments from the FTSE 100, and across all sectors.
Mining giant Rio Tinto, pharmaceutical group GlaxoSmithKline, and Tesco all make it into his top ten holdings.
Performance of funds vs sector over 1-yr
Source: Financial Express Analytics
In the past year, both of Lees' funds have outperformed their UK All Companies; the Institutional UK Equity fund returned 27.7 per cent, and the UK Equity fund 26.5 per cent, compared to the sector's 25.8 per cent.
In spite of fears on the sovereign debt crisis, the outlook for UK companies is strong, Lees states. He says that the latest set of company results to come out were on the upside and that, while lots of companies slashed their dividends in the downturn, they are now making a comeback.
"UK growth funds do well when small and mid caps are outperforming, and similarly do badly when they are underperforming. When markets plummeted in the fourth quarter of 2008, the only way to react was to sell stocks, and the only stocks you could sell were good stocks. I held on to them, based on the knowledge that I held high quality businesses, and their value would rise again," says Lees.
But his outlook is positive, knowing that he can utilise UCITS III should the market see a double dip.