The following is a press release from Rothstein Kass.
HEDGE FUND MANAGERS ANTICIPATE INCREASED REGULATION UNDER NEW PRESIDENTIAL ADMINISTRATION ACCORDING TO NEW SURVEY FROM CPA FIRM ROTHSTEIN KASS
Majority of Senior Partners at U.S. Firms Expect Rising Compliance Costs Will Make Hedge Funds More Costly to Operate
New York, NY – November 13, 2008 – Over 98 percent of senior hedge fund managers reported that the new U.S. Presidential Administration is likely to increase regulation of the hedge fund industry, according to “A New Regime: The Regulatory Climate for Hedge Funds,” the latest report on sector trends by CPA firm Rothstein Kass (www.rkco.com). An overwhelming majority also suggested that associated compliance costs will make hedge funds more costly to operate, with over 80 percent of respondents in agreement. While just over 75 percent of participants suggest that the overall impact of the new administration will be negative, most reported that increased regulation will not lead to more fund closures or fewer start-ups.
“It’s a generally accepted behavioral concept that uncertainty creates negative emotions. The financial services industry in particular has always been leery of the unknown, as uncertainty magnifies risk. Consequently, we expected our findings to show a degree of skepticism regarding the new administration and its regulatory agenda,” said Howard Altman, Co-Managing Principal of Rothstein Kass. “The election’s focus on the economy left many with the impression that regulatory reform will be a priority for the new regime. While the scope of these efforts is not yet defined, it is apparent that the hedge fund industry believes that regulatory action is on the horizon.”
Research for “A New Regime,” a Rothstein Kass flash survey examining the evolving regulatory environment for alternative investment firms, was conducted by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of wealthy individuals. The survey was based on telephone interviews with 313 hedge fund Senior Partners at US-based hedge fund organizations. Participating firms were segmented by assets under management. Slightly over 70 percent of the participants reported assets under management between $100 million and $750 million. Nearly 30 percent of firms reported assets under management in excess of $750 million. Among notable findings:
Over 98 percent of hedge fund managers believe that the new administration is likely to increase regulation of the hedge fund industry. Areas where increased regulation is expected:
o Asset Valuations 84%
o Counterparty Risk 84%
o Capital Raising 80.8%
o Transparency 77.3%
Nearly 77 percent of respondents agreed that the overall impact of the new administration on the hedge fund industry will not be positive
Under half of participants indicated that increased regulation would impact capital raising efforts
Nearly 84 percent of hedge fund managers believe that regulatory compliance costs will make hedge funds more costly to operate
“Though hedge fund managers readily acknowledge that a more restrictive regulatory environment looms, the industry seems well-positioned to meet the demands of increased compliance. Despite the fact that nearly 84 percent of participants believe that compliance costs will make funds more costly to operate, fewer than seven percent expect that this will lead to increased costs to investors,” said Mr. Altman. “Moreover, based on the research, it does not appear that the impact of increased regulation will impede fund launches or accelerate closures. Fewer than six percent of participants agreed that compliance costs will lead to more closures, with a similar percentage reporting that there will be fewer start-ups due to increased regulation.”
About Rothstein Kass:
Rothstein Kass is a premier financial services firm, recognized nationally as a top service provider to the alternative investment industry. The Firm provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, brokerdealers and registered investment advisors. Rothstein Kass is recognized nationally as a top service provider to the industry through its Financial Services Group. The Financial Services Group consults on a wide range of organization, operational and regulatory issues. The Firm also advises on fund structure, both inside and outside the US, compliance and financial reporting, as well as tax issues from a federal, state, local and international compliance perspective. Rothstein Kass regularly ranks among the “best places to work” in its markets of operation, and was recently named the top accounting firm to the alternative investment industry in the 2008 “Alpha Awards” published by Institutional Investor. Rothstein Kass has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands. www.rkco.com
About the Authors:
Russ Alan Prince is the world’s leading authority on private wealth, the author of 40 books on the topic, and a highly-sought counselor to families with significant global resources, and their advisors. He is co-author of Fortune’s Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals. www.RussAlanPrince.com
Hannah Shaw Grove is a widely recognized author, columnist, speaker and an expert on the mindset, behaviors, concerns, preferences and finances of high-net-worth individuals. She is co-author of Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy. www.HSGrove.com