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Digital Subscriptions > The Hedge Fund Journal > Issue 134 – Aug 2018 > INDOS Financial: Gathering Momentum

INDOS Financial: Gathering Momentum

Why AIFs choose an independent depositary

HAMLIN LOVELL

PROFILE

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.

Bill Prew, CEO, Andrew Watson, Nicola Harte (both Depositary Managers), Jon Masters (Head of Client and Business Development).

Start-ups and small funds

INDOS has some appetite for start-up and smaller managers and has recently secured the mandate for Indar Capital, which has an anchor seed investment from Tages Capital. INDOS works for some sub-AIFMD threshold managers (open ended funds with gross assets under EUR 100 million, or closed end funds with lock ups of at least five years running below EUR 500 million) that are not required to have a depositary. “Smaller managers really appreciate the added value provided by INDOS, such as a NAV restatement that a third party AIFMD platform did not spot,” says Prew. However, he realises that INDOS’ minimum annual fee (of USD 30,000) may be too high for some small funds, which might be paying as little as USD 50,000 a year for administration. INDOS is paid by funds, but an expense cap can in effect mean that a small manager would have to forego some management fees to accommodate the depositary cost within the expense ratio ceiling.

INDOS’ growth is increasingly coming from seasoned funds with track records beyond five years, and ten figure assets: seven manager clients have an underlying NAV overseen by INDOS over $1 billion. They are switching from bundled providers to INDOS’ standalone offering.

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.

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