Globally, regulators have been working towards a G20 agenda of introducing new registration and reporting rules for hedge fund managers. Both the Alternative Investment Fund Managers Directive (AIFMD) in the European Union and the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States are seeking to enhance the flow of information from the hedge funds. The wide-reaching Foreign Account Tax Compliance Act (FATCA) in the United States also poses enhanced compliance requirements from the hedge funds.
These new regulations have thrown open a window of employment opportunity in the hedge fund industry.
In May 2012, KPMG and Alternative Investment Management Association released a report titled, The Evolution of an Industry after conducting various surveys and structured interviews with hedge fund managers from around the globe. The objective of this study was to obtain insights and opinions from hedge fund managers with respect to a wide range of timely, industry-related topics, including the growing emphasis on transparency and due diligence and ongoing regulatory challenges.
Increased Compliance. Increased Headcount.
The survey results revealed that, regardless of hedge fund size, nine out of ten hedge fund respondents reported an increased demand for regulatory compliance by investors.
The survey also found that eight out of nine hedge fund respondents reported they had to increase their employee headcount to accommodate this new demand from investors and that many of the managers were expecting to continue to hire more people over the next two years in the area of regulatory compliance.
The costs associated with regulatory compliance in this new environment can be high and include everything from investments in technology to on-boarding new staff members with compliance-related skill sets. According to the survey, the more established firms (those with 100 employees or more) hired double the number of people hired by the entire sample group.
The survey also found that the larger hedge fund firms have the most compliance staff members. For firms with 25 to 99 staff, 11 percent work in compliance, compared to13 percent for firms with 100 or more employees.
The survey results indicate the majority of survey respondents have acknowledged the fact that they have moved into an era of increased regulation. Ten years ago, compliance personnel rarely met with investors. Today, investors talk to the Chief Operating Officer, the Chief Financial Officer, and the Compliance Officer.
Enhanced Due Diligence by Investors
Since 2008, there has been substantial increase in due diligence by investors. Some hedge fund managers indicated that they have significantly increased the number of face-to-face meetings they conduct in order to satisfy the dramatic rise in the number of requests by investors. Previously good performance meant that investors didn’t do such in-depth reviews. Today, reviews take six hours and will involve, not only board room presentations, but reviewing reports, speaking to staff on the floor, and looking at IT infrastructure.
The survey thus projects a good opportunity for hedge fund professionals, who need to support both increased regulatory compliance requirements, and increased investor demand for transparency and due diligence. With many hedge fund managers expecting the pressures associated with these new requirements to continue for the foreseeable future, a great employment opportunity has been thrown open for those who want to make a career in the high-profile hedge funds industry.