Hedge fund managers are certainly not waiting for the regulatory winds to pass. Indeed, responses to our survey seem to demonstrate that most hedge fund managers have already made significant investments into building their compliance capability and processes.
Clearly, the industry has committed itself to meeting its compliance requirements. Almost two thirds (64 percent) of respondents reported that they were spending upwards of 5 percent of their total operating costs on meeting their compliance requirements while more than a fifth (21 percent) said they were spending more than 10 percent of their operating costs.
Interestingly, smaller hedge funds seem to be spending more on regulatory compliance costs than their larger counterparts. More than a third (35 percent) of hedge funds with less than USD250 million in AUM said compliance requirements represented more than 10 percent or more of their total operating costs. No funds with AUM of more than USD5 billion and only 14 percent of those with AUM of between USD1 billion and USD5 billion said the same.
What is particularly noteworthy is that – on the whole – managers seem to be bearing the increased cost of compliance rather than passing costs on to their funds and, ultimately, their investors.