Bill Prew, INDOS Financial Limited founder and CEO, believes that the AIFMD depositary fulfils a utility function of benefit to the whole financial community, policing funds from many angles on a daily basis, and alerting administrators, managers, fund boards and where appropriate regulators to concerns. Prew argues that a properly assiduous AIFMD depositary would have blown the whistle on the Weavering fraud. Of course, the whole industry has raised its game since the credit crisis, but INDOS identify many issues through their fund oversight. Some have led to NAV restatements, and to administrators compensating funds for processing errors.
Depositary services are nearly always bundled with administration or custody (or both) as current market practice encourages this. Some asset managers want a “one-stop shop” including all three services, and the “inertia factor” meant that using the incumbent provider was the line of least resistance when AIFMD required some AIFs to have a depositary. Very few independent depositaries exist, and some providers may be reluctant to offer depositary on a standalone basis. As part of a depositary mandate, one global custodian demanded custody of assets, Prew said. This was not a viable option as taking assets away from prime brokers could have severed the fund’s prime broking relationships.