Standalone fund admins will struggle to find depositary partners, warns BNP Paribas
Standalone fund administrators without banking licenses could struggle to find depositary partners as AIFMD edges ever closer, a senior executive at BNP Paribas Securities Services has warned.
A banking license is mandatory if a fund administrator wants to act as a depositary.
“Some standalone administrators are not banks and they have a serious structural issue as they cannot be a depositary. They will need to find depositary partners and this is not a clear-cut process. A lot of banks and large administrators are going to be reluctant to be depositary partners to their competitors, especially when we have invested colossal sums to put in place platforms to enable us to comply with EU regulations,” said Chris Adams, head of hedge fund solutions at BNP Paribas Securities Services in Luxembourg.
The European Commission is not backing down on depositary liability, as leaked documents of the latest AIFMD draft clearly indicate. The Alternative Investment Management Association (AIMA) has said the cost of forcing managers to have a depositary to safeguard their assets could be as high as $6 billion in a worst case scenario. However, this figure has been questioned by some industry experts.
Adams, a not entirely disinterested party, said hedge funds would be better placed to appoint an administrator which can act as a depositary itself. “If managers consolidate the services with a single provider, the overall net fee burden will reduce. It will also reduce the time and effort of working with multiple service providers,” he said.
Predictably, it will be the smaller administrators which feel the pinch – a point reinforced by Adams. “The smaller fund administrators will come under ever increasing pressure as AIFMD comes into force. I cannot recall when we saw a fund administrator last launch. The economics of the industry is certainly changing.”
Fund administrators have undergone major consolidation of late. SS&C acquired GlobeOp in a move creating a provider with northwards of $300 billion AuA, while State Street is in late stage negotiations to purchase Goldman’s fund admin business which could lead to a combined entity servicing $700 billion AuA. Some experts have said regulation and depositary liability have been a factor behind this M&A activity.
The leaked AIFMD draft, however, has made concessions on inter-governmental cooperation. Industry sources said last week the European Commission had backed down on provisions that would have required third country regulators to enforce EU law in their jurisdictions. The tone of the latest draft appears to be based more on mutual cooperation rather than legally binding cooperation.