The hedge fund industry has spent more than $3 billion to comply with new regulatory requirements, with large hedge fund managers spending an average of $14 million on compliance, according to a survey.
The global survey of hedge fund managers by KPMG International, Alternative Investment Management Association and Managed Funds Association also showed that hedge funds spent 5% to 10% of all operating costs on compliance technology, staff and strategy. Also, the smaller the firm based on assets under management, the higher the percentage of operating costs were required for compliance.
Most of the cost, however, is not being passed on to clients, as 71% of respondents said they are shouldering the majority of the costs associated with compliance, said Peter Settles, KPMG spokesman.
The Alternative Investment Fund Managers Directive and the Foreign Account Tax Compliance Act were the highest in terms of cost, time and need for external support. More than two-thirds of the respondents said they needed outside help with AIFMD authorization and reporting; 65% needed help with FATCA; 63% with their SEC registration and reporting; and 62% with Commodity Futures Trading Commission registration and reporting. By comparison, fewer than 25% of respondents said they needed outside help with registration and reporting in Asia-Pacific countries.
Andrew Baker, CEO of AIMA, said in a news release that the survey showed the industry “is serious about building its operational infrastructure for regulatory compliance.” But it is important that regulation does not raise barriers to entry to the industry.”
Two hundred hedge fund managers with a total of more than $910 billion in AUM were surveyed between May and August.