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Determining the veracity of assets is a core requirement

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Both depositories and fund administrators face huge demands from a data management perspective under the AIFM Directive. For any depository appointed by an AIFM running an onshore hedge fund, the scope of responsibility is greater than that required under a depository lite scenario for AIFMs running non-EU funds. This is because of the strict liability placed on the depository to return assets to the AIF in the event that something unforeseen happens and assets are lost.

Combined, the depository to an alternative investment fund (AIM) will have three core tasks to perform safekeeping of assets, cash monitoring, and general operational oversight of the AIF. Hence the need for reliable data to support a depository’s compliance workflow, especially if the AIFM continues to use existing multi-prime brokerage relationships.
Unsurprisingly, Advent has long been ahead of the curve and is well placed to support depositories under AIFMD with respect to asset verification. With Advent Data Services (ADS), what the firm has done is effectively reinvent its counterparty network to enhance the regulatory compliance demands depositories (and other service providers) now find themselves under.
“Through Advent Data Services, we offer the industry’s largest and fastest growing network of counterparty connections for detailed position and transaction information. Through this service, we provide clients with a single normalised data feed so they can quickly and easily access detailed information across counterparties that is critical to addressing the AIFMD directive. Clients use this data not only in support of AIFMD specifically, but also to address broader regulatory and asset verification related initiatives. In addition we have well-established portfolio management products such as Advent Geneva, which performs data aggregation at the position level for reporting,” explains Roger Woolman (pictured), senior solutions consultant at Advent.
A bespoke compliance dashboard where the depository would be able to check the asset (as part of their oversight function) against the fund mandate can be facilitated using existing dashboards and monitoring tools within Advent Geneva.
There are three main areas for depositories to focus on under AIFMD: data collection and aggregation, compliance, and reporting.
“AIFMD is designed to protect investors from fraud so a depository has to determine not only that various assets are aggregated and monitored but also to identify assets that might be excluded.
“It’s not therefore a question of having to aggregate all assets as there will be contractual agreements in place with prime brokers,” says Woolman.
The depository will be required to collect various levels of data such as:

  • Assets 
  • Custodian 
  • Collateral 
  • Rehypothecation data 
  • Fund mandate

Ultimately, asset verification by aggregating data from various sources is aimed at ensuring where a fund’s assets are held and who owns them.
Compliance is another important aspect. A fund’s mandate might prevent exposure to certain instruments. The depository will need to make sure in its oversight function that the manager doesn’t try and work around that mandate by using swaps, or some other form of instrument, that are prohibited in the mandate.
“The third element is reporting to the authorities. Classifications schemes may or may not vary i.e. the Dutch insist on a specific classification of securities but the UK may have a different classification scheme requirement. You could add a fourth element. This relates to insurance which the manager pays to the depository to ensure that the fund’s assets are replaced in the event that something goes wrong,” adds Woolman.
ADS, in tandem with Advent Geneva, is a two-pronged approach to verify the assets and effectively aggregate data pertaining to those assets for reporting purposes.
“Geneva has always been very strong at tracking exposure of the underlying assets. It has broad asset coverage and can track exposure to underliers on swaps and other such contracts to support look-through reporting capabilities. The ability to configure a bespoke dashboard under AIFMD, to make this more user-friendly, can be implemented We already have other dashboards for verifying rules and limits, post-trade compliance etc.”
The ADS solution gives Advent secure hub capabilities for processing what is expected to be a deluge of data for AIFMD in both the US and Europe. “It offers two-way connectivity and communication,” says Woolman, who describes ADS in layman’s terms as a “global platform for firms to receive and disseminate all asset and portfolio-related information”.
The benefit to depositories who use ADS is that Advent is a neutral party that offers complete independence in handling and maintaining data, as well as looking at new ways to improve and expand upon the number of data providers and scope of data. It already uses 800-plus data providers.
Woolman explains that ADS is part of a new thrust by Advent under its cloud-based holistic framework called Advent Direct. This framework brings the three key tenets of data management, workflow management and reporting together, in so doing allowing end-users to respond to any form of regulation; not just AIFMD but Dodd-Frank in the US, EMIR reporting in Europe etc.
“I think the message for us is that Advent is transitioning away from a modular approach and moving towards more innovative ways to deliver integrated user-centric workflow solutions that are easy to adopt and use.
“All our services will come out of the Advent Direct cloud-based platform. What services a client uses will simply depend on who they are as a firm. When we talk about our different solutions, in the future we will not think of them as distinct modules – rather as part of the Advent ecosystem.
“If a depository comes to us for a depository service under Advent Direct it’s a case of saying to them, ‘What portions of [the depository function] do you want to fulfil? Then the consideration becomes which services to avail of within our overall Advent Direct offering,” explains Woolman.
This will allow for a more intuitive approach; one that will allow depositories to be much more flexible in their ability to support both onshore AIFs under full AIFMD and offshore AIFs under a ‘depo lite’ solution.
ADS has started to attract strong interest from depositories. Woolman confirms that a large deal was signed last year and that a number of deals are currently in the pipeline as service providers begin to fall into line under AIFMD.
“Interest from existing clients is very high. If you can’t do this (support AIFMD) it’ll make you less competitive. Clients need to verify the assets, consolidate data for reporting. They want notification of cash movements. So there are a number of different layers to AIFMD. As a vendor, we’ve got to support these functions in different places: verification and consolidation of assets in ADS, Advent Geneva for the compliance and monitoring function.
“Ultimately, depositories will have the option of using Advent Direct for as much or as little support as required depending on which roles they need to perform under AIFMD,” concludes Woolman. 

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