As hedge funds rush to outsource their compliance functions to meet the reporting requirements set out in the Alternative Investment Fund Managers Directive (AIFMD), many are failing to take in to account the risks of doing so, argues tech firm ViClarity.
ViClarity, a compliance software provider, estimates around seven in 10 hedge fund firms in Europe are outsourcing their reporting requirements to fund administrators. However, it believes many have not realized that AIFMD requires fundamental changes to business structures, conduct and processes.
“AIFMD is not just about changing the activities of a firm’s chief risk officer, it is about changing the way that most people in the firm conduct business,” says Ogie Sheehy, founder and CEO, ViClarity.
“Those that are outsourcing in practice appear to have one thing in common, which is a tendency to pay minimal attention to the audit of business conduct.”
The firm warns if managers do not make the necessary changes to achieve AIFMD compliance, they may put their business and their clients at risk within a matter of months.
The Annex IV reporting component of AIFMD requires quarterly accounting of different aspects of the AIF.
Speaking in Global Custodian’s 25th Anniversary Issue, Isadora Pardo, Business Implementation Manager for Linedata, says: “Hedge funds need to adapt their mind-set and accept the added value of AIFMD. Bringing the control governance inside the asset management protects against system risk and benefits the hedge fund’s reputation.”
Tech Firm Warns Hedge Funds Of Outsourcing Reporting Risks
As hedge funds rush to outsource their compliance functions to meet the reporting requirements set out in the Alternative Investment Fund Managers Directive (AIFMD), many are failing to take in to account the risks of doing so, argues tech firm ViClarity.