AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

Hedge fund COOs rise to new regulatory hurdles

Deutsche Bank

Q4 2013

 

Summary

 

In July 2013, 44 European and US hedge fund managers were surveyed, representing nearly $325 billion in assets under management (AUM). The survey found:

  • The amount of time that COOs dedicate to legal, compliance and regulatory matters has increased substantially over the past two years. Globally, a COO’s time spent on legal and regulatory matters has increased up to 50% more for the majority of managers surveyed.
  • Over the past two years, more than 40% of respondents have hired more than one non-investment full-time equivalent (FTE) to help prepare for and manage new regulatory requirements.
  • Globally, the majority of managers surveyed estimate that their non-headcount related costs have increased up to 25% over the last two years.
  • The UK Financial Conduct Authority (FCA) has given hedge fund managers until July 2014 to become authorized under AIFMD. 82% of hedge fund managers are preparing now to submit their authorization applications in 2014, in line with the FCA’s recommendations.
  • 39% of the managers surveyed are still uncertain as to whether AIFMD will bring additional investment from institutional allocators.
  • Marketing to European investors continues with a significant proportion of managers in Europe (35%) and the US (43%) choosing to utilize transitional marketing provisions. Alternatively, half of managers have decided to respond only to incoming investor requests for information regarding their funds until they have further clarity on marketing into Europe under AIFMD.

Impact of changing regulation on hedge fund managers’ operations and infrastructure

COOs are dedicating an increasing amount of time on legal, compliance and regulatory issues. 61% of European managers and over half of US managers estimate that their COO dedicates over 25% more time on legal, compliance and regulatory issues than two years ago. Notably, in the US, almost a quarter of COOs have seen an increase of up to 75% in the time that they dedicate to addressing such issues. The regional difference is most likely attributed to the fact that US managers had to prepare for SEC and CFTC registration and reporting before their European counterparts were required to comply with AIFMD.

 

By how much has the COO’s time dedicated to legal, compliance and regulatory issues increased over the past two years?

 

1

  

Source: 2013 Deutsche Bank Survey

 

Managers are growing the size of their non-investment teams amid increasing regulatory requirements. To help prepare for and manage new regulatory requirements, 41% of managers surveyed have hired more than one non-investment FTE (including contract workers) over the past two years. Results show minimal regional difference.

 

By how much has your firm’s non-investment headcount (including contract workers) increased over the past two years in order to prepare for and manage new regulatory requirements?

 

2.jpg

 

Source: 2013 Deutsche Bank Survey

 

European and US managers are growing their budget for costs related to legal, regulatory and compliance matters. 42% of European respondents say that their overall non-headcount related costs have increased by more than 25% over the past two years. These costs include technology, external legal, compliance, tax, regulatory reporting and other external consulting. The majority of US managers (67%) say costs have increased by only 1 – 25%. This is inclusive of 38% who said overall costs had only increased by less than 10%.

It was surprising to see that a small proportion of European managers (13%) report that costs have actually decreased over the past 2 years; however, those had hired internally and in-sourced much of the related work.

 

Over the past two years, by how much have non-headcount costs increased overall?

 

3.jpg

 

Source: 2013 Deutsche Bank Survey

 

Regulatory changes are driving up costs, namely around regulatory reporting and external legal advisory. Approximately 40% of managers report that expenditures for regulatory reporting and external legal advisory have increased by more than 25% over the past two years.

For technology, along with external compliance, external tax advice and other consulting-related costs, the majority of respondents report an increase of between 1 – 10%.

European managers report a greater increase in expenditure for technology and regulatory reporting over the past two years than their US peers.

 

Percentage increase in costs by category (all respondents)

 

4.jpg

 

Source: 2013 Deutsche Bank Survey

 

MARKETING INTO EUROPE UNDER AIFMD EUROPEAN MANAGERS

 

European managers

The majority of European managers have decided to respond only to incoming investor requests for information regarding their funds. 35% of European managers continue to market in the EU within the jurisdictions where they qualify for the transitional provisions, delaying full compliance until July 2014. However, the large majority (56%) have decided to respond only to incoming investor requests for information regarding their funds. Less than 10% of managers say that they are planning to become authorized as soon as possible.

 

How do you plan to market your non-European fund to European investors after July 22, 2013?

 

5.jpg

 

Source: 2013 Deutsche Bank Survey

 

The majority of European managers are planning to submit their application for AIFMD authorization in 2014, in line with UK FCA guidance. 82% of European managers responding to the survey intend to wait until 2014 to apply for AIFMD registration. That said, 36% of European managers say that they may register earlier than anticipated provided they have further clarity and guidance on all aspects of AIFMD. 19% would consider early registration if marketing opportunities arise from the EU passport.

 

When do you intend to apply for AIFMD registration?

 

6.jpg

 

Source: 2013 Deutsche Bank Survey

 

Which of the following may cause you to register earlier than currently anticipated?

 

7.jpg

 

Source: 2013 Deutsche Bank Survey

 

Managers remain uncertain as to whether AIFMD will have a positive impact on capital-raising in Europe. 61% of the managers polled say that they do not believe that AIFMD will provide new sources of investment from institutional allocators. Another 39% of managers polled stated that they were “uncertain.”

 

From your firm’s perspective, will AIFMD provide new sources of investment from institutional allocators?

 

8.jpg

 

Source: 2013 Deutsche Bank Survey

 

US managers

US managers continue to seek investment from Europe after July 22, 2013. US managers are split in how they are approaching marketing into Europe. Over 40% of US managers continue to market into Europe under transition provisions, while an additional 43% state they will respond only to incoming investor requests for information regarding their funds. Only 14% have chosen to comply fully with AIFMD requirements concerning non-European managers marketing non-European funds, including the transparency provisions set out in Articles 22-24 of AIFMD.

 

How do you plan to market your non-European fund to European investors after July 22, 2013?

 

9.jpg

 

Source: 2013 Deutsche Bank Survey

 

Of those respondents who do not intend to actively market to Europe, 44% highlight that reporting obligations were a key factor in contributing to their decision. The second most prevalent reason was remuneration disclosures (31%).

 

If you do not plan to continue marketing to European investors after July 22, 2013, what are the factors contributing to your decision (check all that apply)?

 

Chart-10.jpg

 

Source: 2013 Deutsche Bank Survey

 

US managers were also asked whether they would consider fully complying with the AIFMD directive if the marketing passport was extended to non-European managers. The majority of respondents either would not be interested or they are undecided about the passport.

 

If the marketing passport is eventually extended to non-European managers with non-European funds, do you intend to register your entity, thereby fully complying with the AIFMD directive including remuneration rules and depositary liability for your fund, in order to access the benefits of that passport?

 

11.jpg

 

Source: 2013 Deutsche Bank Survey

 


 

Disclaimer

This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates (“DB”). Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on any specific final documentation relating to a transaction and not the summary contained herein. DB is not acting as your legal, financial, tax or accounting adviser or in any other fiduciary capacity with respect to any proposed transaction mentioned herein. This document does not constitute the provision of investment advice and is not intended to do so, but is intended to be general information. Any product(s) or proposed transaction(s) mentioned herein may not be appropriate for all investors and before entering into any transaction you should take steps to ensure that you fully understand the transaction and have made an independent assessment of the appropriateness of the transaction in the light of your own objectives, needs and circumstances, including the possible risks and benefits of entering into such transaction. For general information regarding the nature and risks of the proposed transaction and types of financial instruments please go to www.globalmarkets.db.com/riskdisclosures. You should also consider seeking advice from your own advisers in making any assessment on the basis of this document. If you decide to enter into a transaction with DB, you do so in reliance on your own judgment. The information contained in this document is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance does not guarantee or predict future results. This material was prepared by a Sales or Trading function within DB, and was not produced, reviewed or edited by the Research Department. Any opinions expressed herein may differ from the opinions expressed by other DB departments including the Research Department. Sales and Trading functions are subject to additional potential conflicts of interest which the Research Department does not face. DB may engage in transactions in a manner inconsistent with the views discussed herein. DB trades or may trade as principal in the instruments (or related derivatives), and may have proprietary positions in the instruments (or related derivatives) discussed herein. DB may make a market in the instruments (or related derivatives) discussed herein. Sales and Trading personnel are compensated in part based on the volume of transactions effected by them. DB seeks to transact business on an arm’s length basis with sophisticated investors capable of independently evaluating the merits and risks of each transaction, with investors who make their own decision regarding those transactions.

 

The distribution of this document and availability of these products and services in certain jurisdictions may be restricted by law. You may not distribute this document, in whole or in part, without our express written permission. DB SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS DOCUMENT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. DB is authorised under German Banking Law (competent authority: BaFin - Federal Financial Supervising Authority) and regulated by the Financial Conduct Authority and the Prudential Regulation Authority for the conduct of UK business. In the US this document is approved and or distributed by Deutsche Bank Securities Inc., a member of the NYSE, FINRA, NFA and SIPC.

 

IN AUSTRALIA: Deutsche Bank holds an Australian financial services licence (AFSL 238153).

In SAUDI ARABIA: Deutsche Securities Saudi Arabia (“DSSA”) is regulated by CMA under authorisation no. 07073-37. DSSA is located on the 17th floor, Al-Faisalia Tower, Riyadh. Tel. +966-1-273-9700 / Fax +966-1-273-9777.

 

IN DUBAI: This information has been provided to you by Deutsche Bank AG Dubai (DIFC) branch, an Authorised Firm regulated by the Dubai Financial Services Authority. It is solely directed at Market Counterparties or Professional Clients which meets the regulatory criteria as established by the Dubai Financial Services Authority and may not be delivered to or acted upon by any other person.

 

IN MALAYSIA: This document is distributed in Malaysia by Deutsche Bank (Malaysia) Berhad.

 

IN JAPAN: This document is prepared by Deutsche Bank AG London Branch and is distributed in Japan by Deutsche Securities Inc. (“DSI”). Please contact the responsible employee of DSI in case you have any question on this document. DSI serves as contact for the product or service described in this document.

 

IN QATAR: Marketing in Qatar by DB non QFC registered entity is permitted with restrictions.

 

IN HONG KONG: This document is intended for “Professional Investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) and any rules made thereunder. In Hong Kong this document is distributed by Deutsche Securities Asia Limited (“DSAL”) and Deutsche Bank AG (“DBAG”). DSAL is an exchange participant of The Stock Exchange of Hong Kong Limited and a licensed corporation with the Securities and Futures Commission. Deutsche Bank AG is regulated by the Hong Kong Monetary Authority as a licensed bank.

 

This document contains information regarding recent legal and regulatory developments. Any legal or regulatory information contained in this document is for information purposes only and does not purport to be legal or regulatory advice and should not be relied on for that purpose. The subject matter of this communication is described in summary form only and may contain material omissions. DB is not acting and does not purport to act in anyway as your advisor in relation to any legal or regulatory matters. You should seek your own independent advice in relation to any legal or regulatory matters discussed herein and professional legal, regulatory or other professional advice should be obtained before taking or refraining from taking any action as a result of the contents of this communication.

 

 

Back to Listing

Main Menu

  1. Home
  2. About
    1. Our Core Objectives
    2. AIMA's Policy Principles
    3. Meet the team
    4. AIMA Council
    5. Global Network
    6. Sponsoring Members
    7. Global Partners
    8. FAQs
    9. Opportunities at AIMA
  3. Join AIMA
    1. Benefits of Membership
    2. Membership Fees
    3. Application form
  4. Members
    1. AIMA Annual Reports
    2. AIMA Governance
    3. AIMA Logo
      1. Policy note
    4. AIMA Members' List
    5. AIMA Review of the Year
    6. Committees and Working Groups
    7. Weekly News
    8. Update Profile
  5. Investors
    1. AIMA Investor Services
    2. AIMA Members' List
    3. Investor Steering Committee
    4. Update Profile
  6. Regulation
    1. AIMA's Policy Principles
    2. Asset Management Regulation
      1. EU Asset Management Regulation
        1. AIFMD
        2. European Capital Markets Regulation
        3. MiFID / MiFIR
        4. UCITS
          1. ETFs and Structured UCITS
        5. Venture Capital
        6. Shareholder Rights Directive
      2. US Hedge Fund Adviser Regulations
        1. Registration and Reporting
        2. Incentive-Based Compensation
        3. JOBS Act
      3. Asia Pacific Asset Management regulation
      4. Other Jurisdictions’ Asset Management Regulation
      5. Regulation of NBFCs / SIFIS
      6. Supervision
        1. UK regulatory reform
        2. European Supervisory Authorities
        3. US Self-Regulatory Organisations
      7. Remuneration
        1. UK
        2. US
        3. CRD IV and CRR
        4. AIFMD
        5. MiFID
      8. Shadow Banking
      9. Volcker Rule
      10. Other
    3. Markets Regulation
      1. Bank/Capital Regulation
        1. Capital Requirements Directive
        2. EU Bank Structural Reforms
      2. Derivatives/Clearing
        1. EMIR
        2. MiFID / MiFIR
        3. MAD / MAR
        4. Dodd-Frank Act Title VII
        5. Hong Kong
        6. IOSCO
        7. Singapore
      3. High Frequency Trading
        1. ESMA Guidelines
        2. MiFID / MiFIR
        3. MAD / MAR
        4. Flash Crash
        5. IOSCO
        6. Germany
        7. CFTC Automated Trading
      4. Insurance Regulation
        1. Solvency II
      5. Market Abuse
        1. MAD / MAR
        2. Indices as Benchmarks
      6. Position Limits
        1. MiFID / MiFIR
        2. CFTC Position Limits
      7. Resolution of Financial Institutions
        1. Europe
          1. EU Bank Recovery and Resolution Directive
          2. EU Non-Bank Recovery and Resolution
        2. CPSS-IOSCO
        3. Financial Stability Board
        4. UK
        5. USA
      8. Short Selling
        1. EU Short Selling Regulation
        2. Hong Kong Short Selling Regulation
        3. US Short Selling Regulation
        4. Short Selling Bans
      9. Securities Settlement
      10. Shadow Banking
        1. International Shadow Banking
        2. EU Shadow Banking
      11. Trading
        1. MiFID / MiFIR
        2. Dodd-Frank Act
    4. Tax Affairs
      1. EU Savings Directive
      2. FAIFs and FINROFs
      3. FATCA
      4. FIN 48 and IAS 12
      5. Financial Transaction Tax
      6. Investment Manager Exemption
      7. UK Offshore Funds Regime
      8. Other
    5. Search
    6. Resources
      1. Guidance Notes
      2. Jurisdictional Guides
      3. Noticeboard
        1. BEPS
        2. Dealing Commission
        3. Derivatives
        4. FATCA
        5. FTT
        6. High Frequency Trading
        7. MiFID / MiFIR
        8. Other Hot Asset Management Topics
        9. Other Hot Markets Topics
        10. Position Limits
        11. Trading
        12. UK Partnership Tax Review
        13. Volcker Rule
      4. Hedge Fund Manager Training
      5. Quarterly Regulatory Update
      6. Webinar Programme
      7. Regulatory Compliance Association
        1. About the Regulatory Compliance Association
        2. RCA Curricula and initiatives for alternative investment firms
        3. Meet the regulators and Sr. Fellows
  7. Education
    1. AIMA Journal
      1. Recent issues
      2. Search AIMA Journal articles
      3. AIMA Journal Archive
    2. The Extra Mile: Partnerships between Hedge Funds and Investors
    3. 'Apples and apples' - How to better understand hedge fund performance
    4. AIMA/KPMG reports on state of global hedge fund industry
    5. Roadmap to Hedge Funds
    6. ‘Capital Markets and Economic Growth – Long-Term Trends and Policy Challenges'
    7. Guides for institutional investment
    8. Industry-standard DDQs
    9. Sound Practices
    10. Industry Guides
    11. CAIA
      1. FAI
    12. Services to Start-up Managers
    13. Useful Websites
    14. 'The Alternative Answer'
    15. Glossary
    16. AIMA's Investor Steering Committee Paper
  8. Events
    1. AIMA Events
    2. AIMA webinars
    3. Industry events
  9. Media
    1. Press Releases & Statements
    2. AIMA's blog
    3. Media Coverage
      1. Articles by AIMA
        1. Archive
      2. AIMA in the news
      3. Video interviews
      4. Industry news
    4. Media Contacts
    5. Press Materials

Sub Menu

  1. Education
    1. AIMA Journal
    2. Bibliography
    3. CAIA Designation
    4. Research
    5. Roadmap to Hedge Funds
    6. AIMA's Investor Steering Committee Paper
    7. Glossary
  2. Regulatory, Tax, Policy & Government Affairs
    1. AIMA Position Papers
    2. AIMA Responses
      1. Australian Tax Office
      2. Authority for the Financial Markets
      3. Committee of European Banking Supervisors
      4. Committee of European Securities Regulators
      5. Commodity Futures Trading Commission
      6. Dubai Financial Services Authority
      7. European Commission
      8. European Securities and Markets Authority
      9. Swiss Financial Market Supervisory Authority
      10. Financial Services Authority (UK)
      11. Financial Services and the Treasury Bureau
      12. Guernsey Financial Services Commission
      13. HM Revenue & Customs
      14. HM Treasury
      15. Independent Commission on Banking
      16. IOSCO
      17. Monetary Authority of Singapore
      18. Securities and Exchange Board of India
      19. Securities and Exchange Commission (USA)
      20. Securities and Futures Commission
      21. Singapore Exchange
      22. The Takeover Panel
      23. US House of Representatives / Senate
      24. Federal Deposit Insurance Corporation
      25. Financial Stability Oversight Council
      26. Financial Stability Board
      27. US Treasury
      28. Internal Revenue Service
      29. US Federal Reserve
      30. Financial Industry Regulatory Authority (FINRA)
      31. Council of European Union
      32. Hong Kong Exchanges and Clearing
      33. House of Lords
    3. AIMA Summaries
      1. CESR
      2. European Commission
      3. Financial Services Authority (UK)
      4. HM Revenue & Customs
      5. HM Treasury
      6. IOSCO
      7. Securities and Exchanges Commission
      8. FSOC
      9. CFTC
    4. Guidance Notes
    5. Jurisdictional Resource
    6. AIMA Noticeboard
      1. EU Directive on Alternative Investment Fund Managers
      2. FSA Remuneration Code
      3. Short Selling
      4. US Dodd-Frank Wall Street Reform and Consumer Protection Act
      5. UK Stewardship Code
      6. Securities Law Directive
      7. EU Directive on Alternative Investment Fund Managers - Level II
      8. EU Directive on Markets in Financial Instruments (MiFID)
      9. International Financial Centres
      10. Bribery Act
      11. Market Abuse Directive
      12. MF Global
      13. FATCA
      14. FTT
      15. Other Tax Issues
    7. AIMA Regulatory Update
  3. Sound Practices
    1. Due Diligence Questionnaires
    2. Guides to Sound Practices
  4. Start-Up Service Providers
  5. Useful Websites