The Alternative Investment Management Association (AIMA) surveyed 200 hedge fund managers representing more than $910 billion in assets under management (AUM) between May and August of this year, finding large managers spent an average of US$14 million implementing compliance costs.
According to The Cost of Compliance survey, which interviewed managers from North America, Europe and Asia, small managers averaged a US$700,000 compliance spend and medium-sized managers spent US$6 million.
However, smaller firms were found to be spending more than their larger counterparts when measured as a proportion of AUM.
The Alternative Investment Fund Managers Directive (AIFMD) and Foreign Account Tax Compliance Act (FATCA) were the main regulatory burdens troubling hedge funds, AIMA found.
A “vast majority” of respondents said their managers were absorbing between 76 and 100 per cent of the costs.
Nine out of 10 managers expected their spend on regulatory compliance-focused technology and external consultants to increase over the next five years, indicating an expectation of rising compliance costs.
“Fund managers around the world are working hard to deal with the challenges of compliance in terms of capital investments, human resources and time,” stated 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.”
Richard Baker, president and chief executive of Managed Funds Association, said through its increased compliance spend the industry had shown its support for global reform and “acted as a willing partner with regulators and policy makers in creating safer, more stable, and efficient markets for investors”.
In other findings, more than two-thirds of the respondents said they needed outside help with AIFMD authorisation and reporting; 65 per cent needed help with FATCA; 63 per cent needed help with their US Securities and Exchange Commission (SEC) registration and reporting; and 62 per cent needed external help with their US Commodity Futures Trading Commission (CFTC) registration and reporting.
However, less than one quarter of respondents said they needed outside help with Asia Pacific registration and reporting.
