founder and CEO of INDOS Financial, the UK AIFMD depositary,
sets out his predictions for the alternative investment fund
depositary market in 2017.
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.
focus and investor awareness about the role of the
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.
focus on the conflicts of interest in the affiliated fund
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.
businesses will continue to reassess their commitment to the
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.
delays to the extension of the AIFMD passport to non-EEA funds
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.
placement and the depositary-lite model set to
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.