Ipes Fund Services has released a short briefing on the back office and fund administration implications of the AIFM directive, whilst also introducing its AIF depositary service.
“While we fully and publicly supported the case against depositaries, that fight is apparently over and we must all adjust to the new paradigm in the most efficient and practical way possible,” said the firm.
It explained that the AIF depositary’s primary role will be to safeguard the fund’s assets and to act independently of the fund manager, whilst monitoring cash flows and ensuring that transactions and valuations are in accordance with applicable laws, fund documents (ie, the LPA or M&A) and the AIFMD.
Of the AIFMD, the firm commented that a key issue of the directive was that it distinguishes between traditional custody assets vs. non-custody assets and has different restrictions, requirements and depositary liability for each type.
“Fund managers need to carefully review their portfolios for each asset type before engaging with depositaries to have a clear understanding of their needs,” it said.
It also warned of the pitfalls of asset verification, stating: “depositaries are required to verify and document the ownership of assets by the fund. While reasonably clear for most financial Instruments, for other assets this is more difficult given that ownership is typically established through a number of legal documents.
“The expertise to definitively confirm ownership is concentrated in a community of expert private equity transaction lawyers…depositaries may be able to rely upon a confirmation letter from such transaction lawyers. However whether such a letter will be available from law firms, and the extent of reliance that a depositary may place on such a confirmation, are both under discussion.”
