Depositary

A job in a depositary will place you at the centre of the fund’s operational flows, overseeing them, and always keeping the best interests of investors of the fund in mind.

Following both the AIFM Law (2013) and the UCITS V Directive (2014) more specific responsibilities were laid at the door of Investment Managers and Depositary businesses. The aim of both was to enhance investor protection. ​If you have a Luxembourg fund, you also need a Lux-based depositary. And now those depositaries have additional responsibilities too.

What is a depositary?

A depositary is an independent third party that is responsible for the safekeeping of assets of an investment fund; performing the cash flow monitoring and the oversight duties of the fund, making sure that all is where it needs to be on assets and documentation, and in respect of their commitments to their investors.

Following the new regulations, depositaries became not only responsible for the safekeeping of assets, but also to ensure that any transactions are carried out in accordance with the law, regulation, and fund documentation. This all meant that recruiting staff for lite depositaries became more challenging, as ideal candidates now need a good understanding of quite a number of the fund’s operational flows, and bring technical knowledge to the role too.

‘Lite’ depositaries have grown extensively in Luxembourg over the last few years. This was due to a combination of Brexit, the AIFMD, and the general feeling of many Real Estate, Private Equity or other alternative fund managers that Luxembourg was the ideal market to domicile their funds.

Following the introduction of AIFMD, the fund marketing environment in Europe changed. In some countries they created additional marketing conditions which included the requirement for AIFMs (Alternative Investment Fund Managers) to appoint one or more entities to provide ‘depositary-lite’ services to each non-EU AIF they wish to market to investors in each of these countries. Broadly speaking, the obligations are similar to that of the full depositary arrangement. However, the critical aspect of depositary-lite is that an appointed service provider would not face the strict liability for the loss of assets, thereby easing balance sheet concerns.

Following this change, it has become almost normal to now see professional services companies, such as medium-sized Fund Administrators, to offer these services in addition. This especially makes sense if they are already servicing the client from a Fund Administration or Fund Accounting perspective.