Investors exert increasing influence on hedge funds’ costs, in particular their desire for improved governance standards and compliance, a report from PCE Investors has found. Where over 70% of a manager’s clients are institutional investors, the proportion spent on corporate control increases. Eight out of ten of those polled consider that investors are placing more emphasis on the back and middle office.
The report from PCE Investors, an investment management company, was conducted by KPMG. Hedge fund COOs in London were interviewed about their back and middle office commitments, providing a breakdown of the costs of running a fund business.
The report also found that the average costs of middle and back office for hedge funds was 45% of the management fee; some hedge funds are experiencing a 25% to 30% rise in the cost of compliance; one in five hedge fund managers “cited staff factors within administrators such as high staff turnover and poor staff training as areas of concern”; and 6% of respondents performed risk management by someone independent of the front office.
Survey participants were based in London and have $13 billion in total assets under management, with a significant proportion under $1 billion. Twenty hedge fund managers took part in the survey, which included hourlong interviews and completion of a questionnaire. Costs are often categorised in different manners, which poses challenges in obtaining a meaningful comparison of costs. Therefore an interview approach was adopted to conduct this survey, supported by a structured questionnaire.