For example, a family office along with an adviser might approach the ACD, because they want the ACD to set up a fund they will invest in.
The ACD will review the proposed arrangement and, if they agree, will become responsible for the fund.
Following further discussions, an investment manager will be appointed.
The more common route is that an investment manager approaches the ACD to set up a fund.
If they reach an agreement the ACD then formally appoints the investment manager.
As the diagram below shows, the ACD is absolutely central to process of investment management.
Jeffree adds: “We work very closely with investment managers. We're at a scale where we get really, really good access to them. They understand our risk appetite for liquidity.
“We share our liquidity reports with them. If anything flags up as an exception, we go straight to the manager and we're asking the investment case for holding the security, whatever it happens to be.
“Ultimately, we are responsible for the liquidity. We can intervene and instruct the manager to sell assets or to reduce size of holdings such that they come into within our parameters of what we find acceptable for our target market and the client base.”
Sometimes referred to as the investment or portfolio adviser to the fund, the investment manager is the professional making the decisions to buy or sell specific financial instruments such as shares or bonds in order to achieve the fund’s investment objectives.
The investment manager may be part of the same group of firms as the ACD, or the ACD may appoint a firm that has no other legal relationship with it.
The ACD must ensure that the investment manager invests the fund’s assets in line with the objectives, strategy and investment principles of the fund and the applicable regulations.
UK authorised funds must appoint either a trustee – in the case of a unit trust – or depositary in the case of an open-ended investment company or ACS. The depositary is independent from the ACD and is responsible for the safekeeping of a fund’s assets, holding them separately from those of the ACD, in case the ACD becomes insolvent.
Increasingly, depositaries are also strengthening their liquidity monitoring capabilities.
A spokesperson for Link Fund Solutions Limited has previously said that if the conditional settlement agreement scheme it entered into with the FCA with no admission of liability had not been approved, it would have challenged the FCA's findings and defended itself against any claims made against it by scheme investors.
Ima Jackson-Obot is deputy features editor of FTAdviser
