In Practice January 10, 2011

New Regulations Main Cause for Concern at Hedge Funds

Hedge fund CFOs say addressing new regulatory requirements and meeting evolving investor expectations are the biggest challenges for 2011, according to a poll by SEI.

Reported by

Rebecca Moore

Half of the CFOs attending SEI’s Hedge Fund CFO Forum cited new regulatory requirements as the most significant challenge facing their industry over the next 12-18 months. Nearly half (47%) said they anticipate the regulations will have a significant impact on their firm’s profitability, according to a press release.

Forty percent of CFOs said besides investment performance, the biggest challenge is providing satisfactory risk data to investors. Thirty-nine percent said economic uncertainty was their biggest challenge.

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The survey highlighted the increasing importance of operational systems and processes in addressing regulatory changes and investor expectations. In fact, nearly a third of those polled said getting investors comfortable with the firm’s operating infrastructure is their biggest challenge in satisfying investors. When asked about the biggest operational challenge, 44% of respondents said increasing efficiency and scalability.

“Satisfying increasing investor expectations related to transparency and due diligence requirements continues to be the drumbeat for managers,” said Phil Masterson, Managing Director for SEI’s Investment Manager Services division, in the announcement. “While we asked our clients about their challenges, we do see opportunities for managers to differentiate themselves. There are opportunities to better educate investors. Opportunities to bolster operational infrastructures. Opportunities to enable greater transparency, drive more efficiency, and enhance internal controls. Ultimately, if done correctly, there are opportunities for managers to create stronger client relationships and build their businesses.”