New York (HedgeCo.Net) – A new survey by Corgentum Consulting shows the majority of investors (72%) feel hedge funds are focused on achieving only the technical compliance, versus pursuing a culture of governance, when it comes to regulatory preparedness.
“The post Dodd-Frank environment has brought increasingly complex technical requirements for hedge funds, such as the recent SEC registration requirements and Form PF filings,” said Jason Scharfman, Managing Partner of Corgentum Consulting. “Investors are increasingly observing that fund managers have become strapped for resources by complying with these new technical rules and have moved away from instilling best practices.”
In addition, 87% of respondents feel that a firm with a dedicated Chief Compliance Officer or General Counsel is less likely to have compliance violations.
“There seems to be a disconnect between the general investor perception that well-resourced hedge funds have better compliance environments versus the reality that hedge funds are more focused on bare technical compliance,” Scharfman added.
Additional survey findings include:
– The biggest hedge fund compliance risks investors worry about are ongoing concerns of insider trading violations (35%) and the perceived risks related to increased frequency of regulatory on-site visits (28%). Investors also expect a greater number of technical violations spurred by regulators’ increasing interaction with funds.
– The majority of investors (78%) felt that hedge funds do not provide enough transparency with regards to the work of legal counsel and the fees associated with such work.
– Investors are increasingly uncomfortable with the ability of hedge funds to advance litigation expenses to fund partners or board members, with 62% stating such provisions are unfair. This suggests that investors are increasingly focused on such technical terms contained in fund offering memorandums as the scope of due diligence processes broadens.
The survey respondents represent a wide variety of hedge fund investors ranging from ultra-high net worth individuals and family offices to fund of hedge funds, pensions and endowments.
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