Hedge Funds Wrestle with Regulatory Changes
A global survey of hedge fund managers reveals that they are making significant investments in their firms’ infrastructure to comply with new regulatory requirements.
According to The Cost of Compliance, a new report produced by KPMG International, the Alternative Investment Management Association (AIMA) and the Managed Funds Association (MFA), the average spend on compliance was at least $700,000 for small fund managers, $6 million for medium-size fund managers, and $14 million for large fund managers.
The survey, which is one of the largest global surveys of hedge fund managers, was conducted between May and August of this year and includes the views of 200 hedge fund managers representing more than $910 billion in assets under management (AUM). It also included in-depth interviews with managers from North America, Europe and Asia.
The study found that the hedge fund industry has already invested heavily in compliance efforts to meet new global regulations, having spent more than $3 billion to date on compliance costs. Hedge fund managers were found to be spending anywhere between 5 percent and upwards of 10 percent of their operating costs on compliance technology, headcount and strategy.
“Fund managers around the world are working hard to deal with the challenges of compliance, in terms of capital investments, human resources and time,” said Rob Mirsky, lead partner for KPMG’s global hedge fund practice. “But there is a sense that the investments they are making today will pay off in the future from a competitive standpoint.”
The cost of compliance is creating a heavier burden on smaller firms and could become a barrier to entering the market. Smaller firms are spending more — both as a percentage of AUM and relative to operating costs– than their larger counterparts. More than a third of hedge fund managers polled with less than $250 million in assets under management (AUM) said compliance requirements consume more than 10 percent of their total operating costs.
Managers said their compliance costs and the need to outsource are directly related to the complexity of the regulations. The Alternative Investment Fund Managers Directive (AIFMD) and the Foreign Account Tax Compliance Act (FATCA) were the highest in terms of cost, time and need for external support, which is likely due to their complexity and global reach.
More than two-thirds of the respondents said they needed outside help with AIFMD authorization and reporting; 65 percent needed help with FATCA; 63 percent needed help with their SEC registration and reporting; and 62 percent needed external help with their U.S. Commodity Futures Trading Commission (CFTC) registration and reporting. By comparison, less than 25 percent of respondents said they needed outside help with Asia Pacific registration and reporting.
“This study demonstrates our industry’s tremendous commitment to a new era of regulation. In supporting the goals of global financial reform, and reinforcing that support with these investments in compliance, the industry has acted as a willing partner with regulators and policy makers in creating safer, more stable, and efficient markets for investors,” said Richard Baker, president and CEO of the Managed Funds Association.
Upstart exchange has seen market share increase to near 4%.
Goldman Sachs Asset Management’s fundamental equity business manages over $20bn in thematic equities.
Data extraction and integration is the second stage of a digitization process.
With Ankit Mittal, Business Change Manager, Global Trading, Schroders
IIGCC and lead investors will launch a pilot with companies including BP, Eni, Repsol, Shell and Total.