By Ron Tannenbaum
How has regulation impacted the hedge fund industry? In this third of a four-part Q&A series, Ron Tannenbaum, managing director of business development for Europe, Middle East, and Africa at SS&C, discusses how regulation affects the hedge fund industry.
How has regulation impacted the hedge fund industry?
The Dodd-Frank Act requires US private funds to supply Form ADVs and Form PF. Dodd-Frank also introduced mandatory clearing for vanilla (OTC) derivatives; hedge funds must appoint clearing brokers and manage their collateral more efficiently. In the EU, the Alternative Investment Fund Managers Directive (AIFMD) introduced additional reporting requirements via Annex IV for EU hedge funds and private equity managers or those marketing into the EU above a certain AuM threshold. AIFMs must also appoint a depositary or depositary-lite in charge of ensuring assets are held safely in the custody chain. Impacted fund managers also face AIFMD asset stripping restrictions (for private equity), remuneration curbs, and rules demanding they appoint an independent valuation agent.
Other rules, such as the European Market Infrastructure Regulation (EMIR) and Solvency II, have also increased hedge funds’ reporting obligations. Additional requirements under EMIR include mandatory OTC clearing obligations and reporting on OTC data while Solvency II requires hedge funds supply intricate data to insurance clients. Private sector initiatives such as the Open Protocol Enabling Risk Aggregation (Open Protocol or OPERA) have also ramped up reporting obligations around risk.
These additional requirements cause a strain on the compliance and legal teams at fund management firms. The consequences of failing to report properly and on time include regulatory censure and reputational damage.
How can outsourcing help firms navigate these challenges?
Outsourcing this work can save costs and time. For example, SS&C GlobeOp creates and retains huge volumes of client data in a central, reconciled database. The client’s data can then be consolidated into regulatory reports. We have a holistic view over all of the source data and our staff has the regulatory and practical knowledge to ensure transparency and create these intricate reports on behalf of clients.
In addition to hedge funds, SS&C GlobeOp works with banks, private equity, traditional asset managers, and insurers. Our service offering can be deployed as separate modules and applied to nearly any financial services institution.
To learn about current trends in the hedge fund industry and how SS&C GlobeOp helps its clients navigate today’s regulated environment, read Growing Trends in Hedge Funds, the final installment of our 4-part Q&A series.