In order to carry out the three main tasks as Depositary, enquiries are made into the administrative organization of the
The cash flows are monitored online and are examined on the basis of what was described during the enquiry phase as suitable for the normal run of events. There is also inspection of all payments made and received whether they can be reconciled. Unaccountable or apparently inaccurate payments are marked out and have to be clarified by the Manager.
The Depositary has to have a picture of the completeness of legal title in relation to the assets that the AIF accumulates. This could differ according to the jurisdiction and ‘asset class’. The Depositary forms a picture of the quality of the documentation, its completeness, and whether all conditions have been met before an investment is entered into. Also, the quality of the relative legal support is an object of attention.
Finally, the Depositary oversees that the Manager meets all obligations set out in the prospectus and in other agreements with the investors. This involves a range of aspects of the control function. Often these involve risk spreading; e.g. risk of excessive focus on specific sectors, land, currencies etc. Also, agreements concerning the Manager’s set up, expenses and management fees are inspected as to their implementation.
The supervisory role of the Depositary is an ongoing process. Random checks are not enough. Any revelations that cannot be explained directly are put before the Manager. According to an entrenched process ,the escalation procedure, any anomaly is put step by step through the various stages before the Manager, the Board of Supervisory Directors or Investors Committee and finally before the AFM. The escalation is halted of course if a satisfactory explanation is found.
The Depositary works in principle on the basis of hourly rates. Once collaboration with the fund manager is established and where necessary approved by the AFM, a fixed fee can more easily be agreed upon. During the run-up stage fees are generally charged on the basis of actual hours worked.