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Frenkel & Co., Inc. Company
November 13, 2008
New York, NY - 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:
“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.”
With tighter regulation ahead, remember - Hedge Fund Insurance sells E&O/D&O policies that provide coverage for any administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document.. Call Mike Feinstein at (212) 488-0270 for more information on regulatory claims protection.
