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INDOS forecasts alternative investment fund depositary market

16 January 2017


CEO of INDOS Bill Prew reveals his predictions for what 2017 holds

Read more: INDOS Financial Bill Prew

Bill Prew, founder and CEO of INDOS Financial, the UK AIFMD depositary, sets out his predictions for the alternative investment fund depositary market in 2017. 

Managers to continue to review performance of depositaries leading to further provider change

In 2016, we saw a number of high profile managers evaluate and change depositary as they sought to improve the service quality and value they obtain from their providers. We expect this change to gather further momentum in 2017.

Increasing focus and investor awareness about the role of the depositary

Awareness of the role and benefits of the depositary among investors and consultants continues to grow. When introduced in 2014, the depositary was an entirely new requirement for many funds. Given the depositary’s fiduciary duty to protect their interests, investors are asking more questions about the role of the depositary. As a result, there is an increasing level of investor due diligence on depositaries which will continue in 2017.

Increasing focus on the conflicts of interest in the affiliated fund administrator/depositary model

Investors and managers will continue to focus more on the potential conflicts of interest between depositaries and other service providers. Very few depositaries are willing to act unless an affiliated entity is the fund administrator. This presents a conflict of interest particularly in the area of oversight around NAV calculation and shareholder transactions. Depositaries are being required to demonstrate how they manage this conflict to ensure that the interests of the fund and its investors take priority over the interests of the depositary and affiliates within the same group.

Depositary businesses will continue to reassess their commitment to the market

In 2016, one provider affiliated to a large global fund administrator exited the depositary market, with the administrator preferring to partner instead with INDOS Financial as an independent depositary. Further exits are possible in 2017, particularly for firms that have not achieved scale or profitability in those non-core business units.

Continued delays to the extension of the AIFMD passport to non-EEA funds and managers

We expect continued delays to the extension of the Alternative Investment Fund Managers Directive (AIFMD) marketing passport to non-EEA funds and managers, in large part due to Brexit. At present the passport is only available to EU managers of EU funds. If the passport is extended, and managers wish to avail of it as opposed to continuing to market via private placement on a country by country basis, managers will need to comply with the full depositary requirements, rather than the so-called depositary-lite model. The European Securities and Markets Authority (ESMA) has now made recommendations that equivalence be given to a handful of third countries under review. However, the decision lies with the European Commission and no word has come from them yet on the topic.  Brexit will most likely lead to further delay.

Private placement and the depositary-lite model set to continue

Under AIFMD private placement can be phased out three years after the extension of the passport. Depositary-lite will continue for as long as there are delays in the extension of the passport and certainly beyond the original 2018 phase out date. Brexit may also have some impact on the future of private placement in Europe for UK managers.


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