Early this morning, the Managed Funds Association (MFA), along with KPMG International and the Alternative Investment Management Association (AIMA), announced the release of a new report, “The Cost of Compliance”. The report, including one of the largest global surveys of hedge fund managers, explores the significant investments firms have made in infrastructure to comply with new regulatory requirements, the effects those costs have had on different segments of the industry, and innovation that has resulted from the new regulatory landscape. Furthermore, the addition of new resources and sharpening of focus on regulatory compliance and risk management suggests that hedge fund managers around the world are committed to meeting regulatory requirements as well as the increased demands of institutional investors.
Significant findings from the report include:
- The average spent on compliance among firms surveyed is at least $700,000 for small fund managers, $6 million for medium-size fund managers, and $14 million for large fund managers;
- The industry has already invested heavily in compliance efforts to meet new global regulations, spending more than $3 billion to date on compliance costs;
- Managers are spending anywhere between 5% and upwards of 10% of their operating costs on compliance technology, headcount, and strategy;
- Overwhelmingly, managers are shouldering the majority of the costs associated with compliance, and not passing them on to the funds; and,
- More than half of the respondents believe that recent regulation has improved the strength, transparency, and reputation of the market and improved investor protection.
In the press release announcing the report, Richard H. Baker noted that the 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.”
The survey collected the views of 200 hedge fund managers accounting for more than $910 billion in assets under management. The survey was supplemented by in-depth interviews with managers from North America, Europe, and Asia.