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Appointment of a custodian - Coggle Diagram
Appointment of a custodian
The board of the fund will appoint the custodian chosen to act and there are numerous factors they will have considered the deciding who to appoint
Credit rating
Particuarly important for larger PE funds
Financial stability and credit worthiness of the custodian is key as they likely to hold electronic title for assets - if they became insolvent this would have serious operational and potentially financial consequences for the fund
Also demonstrates a robustness which means they are more likely to be able to withstand significant market events
Capital base
When considering the financial stability of a custodian they will look at the capital within the institution
Capital within an organisation that is considered in relation to the financial stability of a custodian, especially for PE funds
Regulators will also inssit that those undertaking the role have a significant capital base given the responsibility they will have
Eg in Gsy, a custodian or trustee of an open ended CIS is required to have net assets of £4m to be considered for a custodian licence
Track record
When appointing a guardian of assets it is important to know what experience they have in already providing that service both as a business and the key individuals involved within that business
Where it is an unusual asset class for which the custodian is providing its services, demonstrating a proven track record of dealing with the asset class in question will be essential
It is easier to identify a custodian with a track record in relation to equities rather than one who has experience in esoteric asset classes such as fine art
For esoteric asset classes appointing a custodian can be more difficult
Fees
The level of fees charged by the custodian will be important to consider as part of managing the total expenses of the fund
If the custodian is going to be very expensive, this will impact upon the overall management charges taken from the fund and potential returns to investors and therefore the appeal of the fund
Reporting and systems
The level and standard of reporting and access to information that is available for the fund admin from the custodian will assist in determining sutiability
Eg systems which enable ongoing, online res by the fund admin or automated contract notes to post a trade to be distributed will ensure ease of admin and therefore cost efficiencies for the admin in relation to the fund and ensure data is always as up to date as possible