GPs urged to engage depositories now

With fresh research confirming that the industry views AIFM depository rules a top concern, advisors at Deloitte are encouraging GPs to begin addressing the matter early in the game.

Early communication with either fund administrators or one of the larger depository players is really crucial, according to Michael Booth, senior manager at Deloitte’s regulatory advisory practice in London.

In a recent Deloitte survey depositories were once again pegged the top concern of the Alternative Investment Fund Managers’ Directive (AIFM) with 84 percent of respondents saying this was their biggest fear. 

A segment of GPs fear the market for depositories will be concentrated to a few large (and inaccessible) players, and that costs will be passed down to displeased investors.

“Some depositories have internal thresholds about the sort of firms that they take on so if a particular private equity firm is not within those thresholds, perhaps they are not big enough or there are other elements of their internal organisation where the depository takes the view that they don’t want to take-on this risk,” said Booth. 

To combat this risk Booth advocates speaking to depositories to find out what choices fund managers have. “If they had done that a few months ago they wouldn't have had a detailed conversation with those players but what we have seen is that the market participants are now starting to have answers to firms' questions,” said Booth.

However, despite the ongoing concerns of the AIFM only five percent of respondents to the survey felt they had limited knowledge of what is required by the directive. “All those firms launching funds in the next year are fully up on the AIFM and they have to be. Those not launching new funds, and purely based in the UK for example, find it quite easy to understand what rules apply because they all apply; this includes the depository regimes and the other operational requirements. They are quite similar to the retail UCITS regime, [however] implementation in practice will be tricky,” said Booth.