A Deutsche Bank survey of hedge fund managers reveals that time and money spent on legal and regulatory matters has increased greatly over the last two years, while at the same time, managers are taking a wait-and-see approach for Alternative Investment Fund Managers Directive (AIFMD) compliance.
In a survey of 44 European and U.S. managers representing $325 billion in assets under management, 40% said that non-headcount related costs, such as regulatory reporting and external legal advisory, has increased by at least 25% over the last two years. Plus, 41% said that they have increased non-investment headcount by more than one over the last two years to help with compliance, and 5% have hired 10 or more to meet this need.
In addition to monetary costs, these changes are also costing chief operating officers more time. Over 60% of European managers and over 50% of U.S. managers surveyed said that their COO spends at least 25% more time on legal and regulatory needs than they did two years ago. Total time has increased up to 50% for the majority of COOs, with the extreme being a greater than 100% increase for 4% of European managers.
While there has already been operational changes due to existing regulation such as SEC registration in the U.S., 82% of hedge fund managers will wait until 2014 to comply with AIFMD. Part of this delay stems from uncertainty, as 36% said they would register sooner if there was clarity on final rules. Plus, managers are unsure how AIFMD will affect allocations. None of the mangers surveyed said that it would cause an increase, while 61% definitively said that it would not provide new sources of investment, and 39% are uncertain.
If AIFMD were extended to non-European managers, most in the U.S. would not jump at the opportunity to use the marketing passport; 39% said they would not register, and 52% said they were undecided.
Currently, U.S. managers are split on how to market their funds in Europe now that AIFMD is in the picture. 43% said they would only market to jurisdictions where they qualify for traditional provisions, meaning they could delay full compliance until July 2014, while another 43% said they would not actively market and only respond to incoming investor requests.
Time Spent on Compliance Rises Up to 50% for Majority of Hedge Funds
A Deutsche Bank survey of hedge fund managers reveals that time and money spent on legal and regulatory matters has increased greatly over the last two years, while at the same time, managers are taking a wait-and-see approach for Alternative Investment Fund Managers Directive (AIFMD) compliance.