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No reuse of assets by depositary - UCITS V Provision: Difference between revisions
No reuse of assets by depositary - UCITS V Provision (view source)
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*“[[Reuse]]” is expressed to be “for the account of” the UCITS. This is consistent with the “reuser” {{ucits5prov|depositary}} acting as ''[[agent]]'' — like, as an [[agent lender]] — on behalf of the fund, rather than as the fund’s [[principal]] (in which case reuse would be for the account of the depositary). [[Agent lending]] is a very different kettle of fish: there, the custodian has not (necessarily) financed the asset — that is to say, an agent lending arrangement is in no sense a function of the principal’s indebtedness to the {{ucits5prov|depositary}} — but rather is a custodian offering to generate some yield enhancement for its clients by lending their assets out into the market, for a fee, against collateral provided by those market borrowers. | *“[[Reuse]]” is expressed to be “for the account of” the UCITS. This is consistent with the “reuser” {{ucits5prov|depositary}} acting as ''[[agent]]'' — like, as an [[agent lender]] — on behalf of the fund, rather than as the fund’s [[principal]] (in which case reuse would be for the account of the depositary). [[Agent lending]] is a very different kettle of fish: there, the custodian has not (necessarily) financed the asset — that is to say, an agent lending arrangement is in no sense a function of the principal’s indebtedness to the {{ucits5prov|depositary}} — but rather is a custodian offering to generate some yield enhancement for its clients by lending their assets out into the market, for a fee, against collateral provided by those market borrowers. | ||
*[[Agent lending]] “[[reuse]]” is, thus, explicitly for the benefit of the fund [[principal]], in that the fund earns a positive return by doing it. The best you could say of {{tag|PB}}-style [[rehypothecation]] is that the fund avoids a steeper financing charge from the {{tag|PB}} that would be implied were the [[prime broker]] not allowed to [[rehypothecate]] the assets it has financed. In any case {{tag|UCITS}} have fairly strict limits against [[leverage]] so generally shouldn't be financing assets in the first place. | *[[Agent lending]] “[[reuse]]” is, thus, explicitly for the benefit of the fund [[principal]], in that the fund earns a positive return by doing it. The best you could say of {{tag|PB}}-style [[rehypothecation]] is that the fund avoids a steeper financing charge from the {{tag|PB}} that would be implied were the [[prime broker]] not allowed to [[rehypothecate]] the assets it has financed. In any case {{tag|UCITS}} have fairly strict limits against [[leverage]] so generally shouldn't be financing assets in the first place. | ||
*Likewise, the theory of [[rehypothecation]] is that it isn't [[Collateral|collateralised]], and certainly not with high-quality collateral: to the contrary, the [[prime broker]]’s right to take assets is dependent on the fund’s indebtedness to the PB, so that there is nothing to collateralise. Arguing that by effectively eliminating [[indebtedness]] is kind of like being [[Collateralised transaction - Basel II Provision|collateralised]] (as long as you limit yourself to 100% of [[indebtedness]]) is | *Likewise, the theory of [[rehypothecation]] is that it isn't [[Collateral|collateralised]], and certainly not with high-quality collateral: to the contrary, the [[prime broker]]’s right to take assets is dependent on the fund’s indebtedness to the PB, so that there is nothing to collateralise. Arguing that by effectively eliminating [[indebtedness]] is kind of like being [[Collateralised transaction - Basel II Provision|collateralised]] (as long as you limit yourself to 100% of [[indebtedness]]) is a stretch. | ||
===What about assets posted as margin?=== | ===What about assets posted as margin?=== | ||