Buy-side reg compliance takes up a fifth of expenditure
10 July 2017 London
Image: Shutterstock
The cost of regulatory compliance is draining up to a fifth of smaller hedge funds’ total expenditure, an Alternative Investment Management Association (AIMA) and GPP survey has found.
The survey, aimed at hedge funds with assets of less than $500 million, found that 90 percent of respondents already allocate up to a fifth of expenditure on compliance, and that allocation is expected to rise when the second Markets in Financial Instruments (MiFID II) goes live in January.
At the same time, MiFID II could restrict market liquidity and have a negative effect on securities lending and repo industry, according to Anna Biala, a partner at Clifford Chance.
Speaking at The Network Forum in Warsaw, Biala highlighted some of the challenges of MiFID II that could affect custodians, including pointing out that the directive prohibits title transfer collateral arrangements with retail clients.
She said it is currently unclear as to whether this includes securities lending and repo transactions, adding: “It seems that that was not the intention of the legislators.”
The survey also revealed that legal services were found to be the most outsourced function among smaller firms, with only 16 percent filling this role internally. However, more than 80 percent of respondents said they planned to increase their headcount in the next 12 months, although the answers didn’t specify which area these roles would be in.
GPP director and head of prime brokerage Sean Capstick said: “We believe this is the first comprehensive survey of the next generation of hedge fund managers. Although this group represents two-thirds of the number of funds in the hedge fund universe, their voice is rarely heard.”
“We are excited to have worked with AIMA to research the opportunities and challenges facing this under-represented group, and to be able to help contribute to their growth. After all, this group is the incubator for tomorrow’s ‘billion-dollar club’ and our findings show them to be in good health, definitely alive and kicking.”
AIMA CEO Jack Inglis added: “Our research disproves the notion that only relatively large, institutionalised businesses can succeed in the modern hedge fund industry. We have found that firms can build strong, sustainable and growing businesses with considerably less than $100 million in assets.”
“This is good news not only for the future health and well-being of the sector but for investors too, since smaller managers have often been the source of many of the industry’s greatest innovations.”
The survey, aimed at hedge funds with assets of less than $500 million, found that 90 percent of respondents already allocate up to a fifth of expenditure on compliance, and that allocation is expected to rise when the second Markets in Financial Instruments (MiFID II) goes live in January.
At the same time, MiFID II could restrict market liquidity and have a negative effect on securities lending and repo industry, according to Anna Biala, a partner at Clifford Chance.
Speaking at The Network Forum in Warsaw, Biala highlighted some of the challenges of MiFID II that could affect custodians, including pointing out that the directive prohibits title transfer collateral arrangements with retail clients.
She said it is currently unclear as to whether this includes securities lending and repo transactions, adding: “It seems that that was not the intention of the legislators.”
The survey also revealed that legal services were found to be the most outsourced function among smaller firms, with only 16 percent filling this role internally. However, more than 80 percent of respondents said they planned to increase their headcount in the next 12 months, although the answers didn’t specify which area these roles would be in.
GPP director and head of prime brokerage Sean Capstick said: “We believe this is the first comprehensive survey of the next generation of hedge fund managers. Although this group represents two-thirds of the number of funds in the hedge fund universe, their voice is rarely heard.”
“We are excited to have worked with AIMA to research the opportunities and challenges facing this under-represented group, and to be able to help contribute to their growth. After all, this group is the incubator for tomorrow’s ‘billion-dollar club’ and our findings show them to be in good health, definitely alive and kicking.”
AIMA CEO Jack Inglis added: “Our research disproves the notion that only relatively large, institutionalised businesses can succeed in the modern hedge fund industry. We have found that firms can build strong, sustainable and growing businesses with considerably less than $100 million in assets.”
“This is good news not only for the future health and well-being of the sector but for investors too, since smaller managers have often been the source of many of the industry’s greatest innovations.”
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