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2013 Business Expense Benchmark Survey
Similar to the earlier analysis, when we consider
the amount of effort expected from existing staff to
support regulation, it is evident that the smaller the
fund, the greater the impact on its people. From a
departmental perspective, compliance and legal were
the most impacted areas, as would be expected. Risk
and the accounting/operations teams are also seen
bearing a moderate amount of the burden in most of
the firms at $10.0 billion AUM or below. Little impact
was expected at higher AUM bands for marketing-
or technology-related personnel, although smaller
firms saw regulatory impacts requiring effort even in
these categories.
It is again worthy to note that the largest of hedge
funds were not impacted to any significant degree
across any of their departments in terms of measuring
regulatory effort as a percentage of total effort. This
indicates that their robust teams are well equipped to
handle the ever-increasing complexity of the industry,
regulatory or otherwise.
Third-Party Expenses Related to Regulation
Impact Budgets at Majority of Firms
Survey respondents were asked to provide details
on their total third-party expenses related to specific
regulatory mandates. The results of that analysis
are highlighted in Chart 36. A few details stand out
in terms of providing insight about which regulatory
requirements are most impacting the firms’ budgets
at this point in time.
The first observation is that, as was noted earlier, the
smallest firms need to spend more as a percentage
of their total AUM in order to comply with industry
regulations. This implies a higher relative burden on
smaller funds, which in turn translates to a higher
barrier to entry. Break-even for these managers
has already moved up to $300 million AUM and if
regulatory costs continue to rise, that figure could
move up even further.
The second observation fromChart 35 is that spending
on third parties to support SEC/CFTC registration,
compliance and reporting requirements is viewed to be
slightly more burdensome than expenditures related
to AIFMD registration, compliance and reporting. This
makes sense given the broad application of the SEC/
CFTC registration mandate versus the more limited
wave 1 implementation of AIFMD registration and
reporting requirements for European Union-domiciled
funds only at this point in time.
The other points to be drawn from Chart 36 are
that once again, regulations had little impact on the
largest firms with >$10.0 billion AUM; interestingly,
there has thus far been little to no impact in terms of
third-party expenses related to the Dodd-Frank/EMIR
OTC derivative clearing rules. Looking at the Asian
regulations, only the smallest hedge funds indicated
a measurable impact in terms of third-party expense,
although this aligns to the survey responses from
that region that were also confined to the smaller
AUM bands.
All
Regulations
Compliance /
Legal
Risk
Accounting/
Operations
Marketing Technology
>10B
10B
5B
1.5B
500M
100M
Chart 35: Level of Effort Required from Existing Staff to Meet Regulatory Mandates: by Function
Zero
Mild
Moderate
Significant
Severe