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Are the Assets in Custody?

March 22, 2017

Authors

Matthew D'Amico

Are the Assets in Custody?

March 22, 2017

by: Matthew D'Amico

Lender Beware: The custody assets you are lending against may not actually be held in custody.

Lenders to funds and other borrowers often extend credit based on a security interest over assets that are held in custody.  The lender is granted a security interest in the relevant custody account and all of the cash, securities and other assets therein, and then perfects the security interest by entering into a “control agreement” with the custodian.  The lender may have made two big assumptions: (1) the custodian has “custody” of the assets, and (2) upon receipt of instructions from the lender after default, the custodian can readily transfer or otherwise dispose of the relevant assets.  Upon closer examination, however, these assumptions may prove to be incorrect.

There are two broad categories of assets

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IPO Market for Closed-End Funds Poised for Serious Rebound

March 1, 2017

Authors

Matthew D'Amico

IPO Market for Closed-End Funds Poised for Serious Rebound

March 1, 2017

by: Matthew D'Amico

It’s clear to anyone paying attention that the market for initial public offerings of closed‑end funds has fallen off dramatically over the last few years.  Undoubtedly, the primary cause of this fall off has been the gaping average trading discount of existing closed‑end funds (i.e., on average these funds have been trading at steep discounts to net asset values).  That made it difficult, if not a practical impossibility, for asset managers to sell shares of a new closed-end fund when investors could simply purchase shares of a similar, existing closed-end fund at a significant discount.

Also contributing somewhat to this fall off has been the relative increase in the cost of leverage as a result of the phasing in of new capital rules for banks.  Many closed-end funds employ leverage to deliver additional

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