Hedge Fund Managers Look to Cut Costs – No Hedge Fund Audit?

As hedge fund performance results are weak or negative, managers are becoming more interested in decreasing the costs that the management company bears directly as well as those costs which are borne by the fund.

One idea has been to delay the yearly audit of the hedge fund’s returns.  This seems reasonable given that audit costs are typically borne by the fund and therefore the investors.  As we’ve noted in an article about hedge fund audit costs, audits are expected to start at about $10,000 – $12,000 and can range all of the way up to $25,000 to $30,000 or more depending on the amount and type of assets, number of investors and the fund structure.

In general, the fund’s audit procedures will be determined by what the offering documents state.  In the event that a fund’s offering documents clearly state that the fund will undergo a yearly audit a manager may still be able to delay the audit.  To do this the manager would need to get all of the investors to agree to delay the audit.  The manager may want to discuss this option with the investors and then more formally request the investors consent to delay the audit.  Depending on the number of investors in the fund and the estimated audit costs, it may turn out to be advantageous for the investors to agree to delay an audit.

However, in the event that investors have requested (or been granted) withdrawals during the year, this will probably not be an available option as those former investors would need to agree as well.  In any event, a manager wishing to delay an audit for this year should discuss this issue with their hedge fund attorney.

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