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Considering in-house ACD solutions? Becareful...

Considering in-house ACD solutions? Becareful...

Friday 27th December 2019
Ryan Johnson

As a result of the heightened awareness surrounding the ACD industry and important role it plays, a number of managers are now starting to look closely at the ACD which is overseeing the fund and asking relevant questions over the setup, the ACDs suitability regarding ownership of the funds in which the ACD 'own' and have legal / regulatory responsibility for.

Following this review fund managers, in some instances, are concluding that the ACD for a particular fund may not have the appropriate oversight capabilities or understanding, expertise required and so exploring if an in a house ACD solution maybe more appropriate moving forward given the managers firm has that level of expertise and experience as they are the delegated manager for the fund.

Whilst many external ACDs have a solid knowledge and understanding not every ACD necessarily has that capability required.

The backdrop to the importance of having a suitable and effective ACD manager understanding and relationship is that the ACD has the ability and authority to 'sack' the fund manager, to which they delegate the responsibility, before the fund manager is able to 'sack' the ACD which is another possible outcome.

This is one of the many conflicts that exist, previously outlined and is currently driving the exploration from managers to look at their ACD setup and as to the most suitable ACD or in house solution.

Many of the external ACDs have come a long way over the years in developing the necessary expertise and quality people to ensure even the most complex fund setups can be robustly overseen and managed.

Therefore, on the whole and on balance, we are in favour of supporting this external ACD model but on the basis that continued investment is needed to increase and keep upto date the level of expertise in a fast changing market, investment in systematic oversight and effective, knowledgeable workforce.

An in house ACD model should be carefully thought through and respected as to the obvious conflicts of interest when having the ACD in house with the manager also under the same entity.

This needs to be robustly tested and the main question asked that should the manager not be adhering to the rules would the internal ACD of the that manager act in the investors best interests.