Are Hedge-Fund UCITS the Cure-All?

Are Hedge-Fund UCITS the Cure-All? — March 2010

4. Depositary Problems for Hedge-Fund UCITS

capital to compensate unit-holders for any relative non-financial losses. When capital requirements are not made of each party, most of these parties have no incentives to manage and communicate risks, as it is highly likely that end-investors and regulators will seek to have the most highly capitalised party, usually the depositary, bear the ultimate responsibility for all losses. By the same token, the liability-sharing agreement proposed in the AIFMD should imply that distributors, asset managers, depositaries, and valuators hold sufficient regulatory capital to discharge their responsibilities in the event of losses. Yet the AIFMD proposal and the consultation on the UCITS depositary have failed to raise the question of capital requirements.

61

An EDHEC Risk Institute Publication