| Hedge Fund Observer: net ouflows for the industry, compliance costs going up |
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| 05/02/2006 | |
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The Securities and Exchange Commission registration requirements will spell a new era of higher compliance costs for hedge fund managers. According to Greenwich Associates, about half of the hedge funds participating in a year-end study expect their compliance costs over the next 12 months to top the amount spent in 2005, just when the new SEC registration rule has been put in place. Apart from a few exceptions, all the hedge funds participating in the Greenwich Associates study saw their compliance costs rise in 2005. Most funds experienced increases on the order of 10-25% due to new compliance hires. Nine out of ten funds said their compliance staffing levels rose last year. "The expectation of rising costs indicates that hedge fund managers as a whole recognize that, for better or worse, hedge funds are entering into a new era of regulation, and checking the box for registration might prove to be the easiest part", says Karan Sampson, a Greenwich Associates hedge fund specialist. About half of the 34 compliance officers at hedge funds operating in the United States and Europe said that they had already registered with the SEC at the time of the study. Among some of the most serious concerns raised by compliance officers are the difficulty in creating an effective record-keeping system, as well as monitoring and enforcing rules regarding personal trading by fund employees. "There is a real question in the minds of many chief compliance officers about whether the independent-minded partners of hedge funds will fully listen to a CCO", says Greenwich Associates consultant William Wechsler. "This could pose a significant risk to hedge funds facing the increased compliance burden associated with registration. On the other hand, there is also the possibility that the dictates of SEC registration might grant new clout to CCOs within their own organizations". The news comes as Hedge Fund Research, the data provider, reported that the hedge fund industry experienced net outflows of money in the last three months of 2005. The inflows remain positive over the whole year. Hennessee Group LLC said that the hedge fund industry net inflows were $40 billion in 2005, considerably less than in 2004, when hedge funds raked in $75 billion. J.L. |
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