The UK’s only independent depositary firm, INDOS Financial, has reached USD5 billion in assets under depositary in its first 15 months of existence.
Bill Prew, pictured, chief executive officer of INDOS Financial says that business is coming, not just from its traditional hedge fund audience but also from the private equity and real estate sector, with three more funds about to come on board.
October will see the arrival of a dedicated and experienced manager for those sectors. “There is a growing acknowledgement of the benefits of an independent depositary in the private equity and real estate space” Prew says, “and in some ways it’s easier for a firm like INDOS, which is used to high volume, open-ended funds to expand into closed ended private equity or real estate funds than it is for the private equity and real estate depositaries to go to open ended funds.”
Business is also coming through firms choosing to switch from their existing depositary who are affiliated to their fund administrators to an independent firm.
“We have seen a shifting mind set, from a year ago when AIFMD took effect, when many managers openly admit they appointed a depositary affiliated to their administrator because they had too much else to do to comply with AIFMD. We have recently taken on a significant mandate switch and expect several others. Managers are realising there are benefits from having an independent solution. ” he says.
Some clients have been disillusioned with the lack of transparency and reporting from their depositaries, Prew finds. “Also consultants are placing more emphasis on the due diligence undertaken by the manager, looking at how managers selected depositaries, ensuring it wasn’t just a default tick-the-box exercise.”
The summer’s AIFMD news was on the potential extension of an AIFMD passport to non-EU funds. ESMA needs to look at more countries and Prew feels that until that is done, the EC will keep the issue under review and do very little.
From his perspective, some of the firms it will impact the most are the US managers who need to navigate various country by country rules to market in the EU via private placement. To avoid this many have chosen to rely on reverse enquiry which presents compliance risk to their business.
He notes that a number of US managers have signed up to a European AIFM platform in order to access the EU marketing passport for any EU funds they run without, as Prew puts it, putting boots on the ground in Europe.
Prew notes a general lull in major regulation in Europe following AIFMD and prior to the introduction of MiFID2. Prew says: “Some managers are using the breathing space to review decisions they took a year ago. They are finding the depositary service lacks real substance and some are seriously thinking of changing providers.”
“Our independence is viewed favourably by investors” he says. “Managers are now saying, ‘how can we turn this requirement to our advantage in terms of demonstrating good governance over the manager and fund operations?’ It’s another genuine layer of checks and balances.”
