Hedge fund managers making significant investments to comply with
regulatory changes: KPMG Survey
TORONTO, Feb. 25, 2014 /CNW/ - Hedge fund managers revealed they are
making significant investments in their firms' infrastructure to comply
with new regulatory requirements, according to The Cost of Compliance, a report produced by KPMG International, the Alternative Investment
Management Association (AIMA) and the Managed Funds Association (MFA),
One of the largest global surveys of hedge fund managers, it includes
the views of 200 hedge fund managers representing more than $910
billion (USD) in assets under management (AUM). The survey found the
average spend on compliance was at least $700,000 for small fund
managers, $6 million for medium fund managers, and $14 million for
large fund managers.
Key implications for the Canadian hedge fund industry:
•Investments being made in compliance efforts: The global hedge fund industry has already spent more than $3 billion
(USD) to date on compliance costs. Hedge fund managers were found to be
spending anywhere between 5 to 10 per cent of their operating costs on
compliance technology, headcount and strategy.
•Smaller firms carry the burden: 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.
Smaller funds are spending a considerable percentage of the fees they
earn on compliance - in North America the cost is 40 bps of Assets
Overwhelmingly, managers are shouldering the majority of the costs
associated with compliance, and not passing them on to the funds.
More than a third of global hedge fund managers with less than $250
million in AUM said compliance requirements consume more than 10 per
cent of their total operating costs.
•Complexity of regulations create need to outsource: More than two-thirds of the respondents said they needed outside help
with Alternative Investment Fund Managers Directive (AIFMD)
authorization and reporting; 65 per cent needed help with Foreign
Account Tax Compliance Act (FATCA); 63 per cent needed help with their
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.
The AIFMD and the FATCA were the highest in terms of cost, time and need
for external support, which is likely due to their complexity and
Many believe that recent regulation has improved the strength,
transparency and reputation of the market and improved investor
protection. This survey shows that hedge fund managers are committed to
meeting regulatory requirements and the increased demands of
"Fund managers are working hard to deal with the challenges of
compliance, in terms of capital investments, human resources and time.
In Canada particularly, we have seen the cost of compliance continue to
rise as managers are subject to a high level of regulation, especially
as far-reaching global regulation, such as Dodd-Frank, FATCA and AIFMD
finds its way across the border."
•Peter Hayes, Partner and National Director, Alternative Investments, KPMG
KPMG on LinkedIn
About the survey
The survey, which is one of the largest global surveys of hedge fund
managers, was conducted between May and August of 2013 and includes the
views of 200 hedge fund managers representing more than $910 billion in
AUM. It also included in-depth interviews with managers from North
America, Europe and Asia.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the
laws of Ontario, is the Canadian member firm of KPMG International
Cooperative ("KPMG International"). KPMG member firms around the world
have 155,000 professionals, in 155 countries.
The independent member firms of the KPMG network are affiliated with
KPMG International, a Swiss entity. Each KPMG firm is a legally
distinct and separate entity, and describes itself as such.
As the global hedge fund association, the Alternative Investment
Management Association (AIMA) has over 1,300 corporate members (with
over 7,000 individual contacts) worldwide, based in over 50 countries.
Members include hedge fund managers, fund of hedge funds managers,
prime brokers, legal and accounting firms, investors, fund
administrators and independent fund directors. They all benefit from
AIMA's active influence in policy development, its leadership in
industry initiatives, including education and sound practice manuals,
and its excellent reputation with regulators worldwide.
AIMA is a dynamic organisation that reflects its members' interests and
provides them with a vibrant global network. AIMA is committed to
developing industry skills and education standards and is a co-founder
of the Chartered Alternative Investment Analyst designation (CAIA) -
the industry's first and only specialised educational standard for
alternative investment specialists. For further information, please
visit AIMA's website, www.aima.org.
The Managed Funds Association (MFA) represents the global alternative
investment industry and its investors by advocating for sound industry
practices and public policies that foster efficient, transparent, and
fair capital markets. MFA, based in Washington, DC, is an advocacy,
education, and communications organization established to enable hedge
fund and managed futures firms in the alternative investment industry
to participate in public policy discourse, share best practices and
learn from peers, and communicate the industry's contributions to the
global economy. MFA members help pension plans, university endowments,
charitable organizations, qualified individuals and other institutional
investors to diversify their investments, manage risk, and generate
attractive returns. MFA has cultivated a global membership and actively
engages with regulators and policy makers in Asia, Europe, the
Americas, Australia and all other regions where MFA members are market
For more information, please visit: www.managedfunds.org.
SOURCE KPMG LLP