HedgeServ exiting the depositary-lite business

Sources say firm will shut depo-lite business, which operates separately from its administration arms.

By Jon Watkins

HedgeServ is shutting its depositary-lite business, according to Global Custodian sources.

The fund administration provider offered depo-lite services as part of its regulatory services.

HedgeServ did not respond to a request for comment.

Under AIFMD, fund managers need to appoint a depositary, however depo-lites were set up with the intention of the depositary not having any liability associated with the safekeeping of assets.

Under article 36 of AIFMD managers of non-EU funds marketing to EU investors through national private placement regimes (NPPR) can appoint a depositary lite to perform the safekeeping of assets, cash flow monitoring and oversight duties.

The depo-lite is legally and functionally separate from their administration arms.

Many small administrators have set up depositary-lites as entirely separate subsidiaries with different management and corporate governance structures.

Global Custodian recently wrote that many fund administrators with depositary-lites may have to rethink their business strategies when national private placement regimes (NPPR) expire.

This may be a refocus on offshore clients with no EU interests or looking at becoming a full depositary institution if they want to preserve their EU clientele. Others may look to consolidate to create economies of scale. However, NPPR is unlikely to expire in 2018, and many expect it to continue in its current form until the early 2020s even.