Depositary Valuation Oversight Support

SUMMARY
The client, a leading private bank, required enhanced oversight of the valuation processes related to illiquid assets such as Private Equity, Real Estate, and Private Debt within its depositary function. The objective was to ensure compliance with regulatory requirements, particularly under the Alternative Investment Fund Managers Directive (AIFMD), which governs the oversight of funds managed by external clients. A key challenge was the review of valuation policies implemented by these clients, alongside managing valuation exceptions and participating in extraordinary board meetings. Avantage Reply assisted by critically reviewing the valuation policies and providing detailed assessments during valuation exceptions. This helped the bank strengthen its oversight of client-managed funds, ensuring greater accuracy and regulatory compliance in the valuation process.

CUSTOMER GOALS
The client aimed to improve its depositary oversight function, specifically focusing on the valuation processes of funds managed by external Alternative Investment Fund Managers (AIFMs). Their goal was to ensure that the valuation of illiquid assets, such as Private Equity and Real Estate, was in full compliance with regulatory requirements, reducing the risk of valuation errors and maintaining a high level of investor confidence.

CHALLENGES
The main challenge involved ensuring that the external fund managers (AIFMs) adhered to the stringent regulatory requirements under the AIFMD. This required the bank to conduct thorough reviews of the valuation policies used by its clients, especially for illiquid assets that are not frequently traded and lacked market transparency. The oversight process also involved reviewing the Net Asset Value (NAV) packs for these funds, handling valuation exceptions, and managing the capital call processes, all while ensuring the bank maintained full compliance with regulatory standards (CSSF Circular 16/644, CSSF Circular 18/697, CSSF Circular 02/77, CSSF Circular 14/591, AIFMD (Directive 2011/61/EU), ESMA Guidelines on Sound Valuation Practices under AIFMD).

SOLUTION
Avantage Reply supported the client by providing expert guidance in reviewing and assessing the valuation policies implemented by their clients, specifically for illiquid asset classes. We conducted in-depth reviews of NAV packs and other key oversight controls as outlined in the depositary oversight control plan. In instances where valuation exceptions arose, we offered critical assessments and participated in extraordinary board meetings to address urgent valuation issues. Additionally, we assisted with the processing of capital calls, ensuring that all procedures aligned with regulatory requirements. This enhanced the bank’s oversight of client-managed funds and reduced the risks associated with inaccurate valuations.

CUSTOMER DESCRIPTION
Internationally operating Private Bank offering various services to their clients, with particular focus on asset management, wealth management and investment services.