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The Cost of Compliance: Global hedge fund survey by AIMA, MFA and KPMG

Major survey finds that the global hedge fund industry has made significant investments in infrastructure to comply with new regulatory requirements

 

Published jointly with the Managed Funds Association (MFA) and KPMG in 2013, ‘The Cost of Compliance’, a major global industry survey, revealed that hedge fund managers are making significant investments in their infrastructure to comply with new regulatory requirements.

According to the report, the average spend on compliance since the crisis has been at least US$700,000 for small fund managers, $6 million for medium-size fund managers, and $14 million for large fund managers.

The survey, one of the largest global surveys of hedge fund managers, included the views of 200 hedge fund managers representing more than $910 billion in assets under management. It also included in-depth interviews with managers from North America, Europe and Asia.

It 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% and upwards of 10% of their operating costs on compliance technology, headcount and strategy.

The survey found that the cost of compliance is creating a heavier burden on smaller firms and could become a barrier to entering the market. The smaller firms are spending more - both as a percentage of AUM and relative to operating costs - than their larger counterparts. In fact, more than a third of hedge fund managers polled with less than $250 million in AUM said compliance requirements consume more than 10% of their total operating costs. The survey also found that overwhelmingly, managers are shouldering the majority of the costs associated with compliance, and not passing them on to the funds.

 

 

Figure 5

AIMA the cost of compliance

“The hedge fund industry is taking its compliance obligations seriously. Not only have most firms already put significant time, effort and capital into meeting regulatory requirements, the majority have also elected to allocate these costs to the fund manager rather than the funds themselves”

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