Wednesday, 1 April 2015
Last updated 24 min ago
Oct 16 2012 | 9:05am ET
New research from a Minnesota law professor suggests the Dodd-Frank Act is proving less onerous than hedge fund managers may have feared.
Wulf A. Kaal of the University of St. Thomas in Minneapolis, approached 1,264 private fund managers who had registered with the SEC prior to the registration effective date. He received replies from 94 managers and it is those replies that form the basis for his conclusion that the hedge fund industry “appears to be only modestly affected by the Dodd-Frank reporting and disclosure requirements and is adapting well to the new regulatory environment.”
Kaal's study, Hedge Fund Manager Registration Under the Dodd-Frank Act—An Empircal Study, found that 76% of respondents felt Dodd-Frank had had no effect on their fund's earnings. That said, 78% said the new regulations were affecting their investment management company's profits, and as Kaal writes, it is “unclear if and how the increased expenses will be passed on to investors over time.”
Asked if they take into account the $1.5 million Form PF threshold for quarterly reporting when determining the appropriate size of assets under management for their funds, a full 80% of respondents said 'no.'
Another 72% of respondents plan no strategic response to the Dodd-Frank Act registration and reporting requirements.
A majority of advisers estimated the cost of compliance with Dodd-Frank at somewhere between $50,000 and $200,000 (with a significant minority putting the price tag between $100,000 and $400,000+) and the majority also put the time required to comply with Dodd-Frank at under 500 hours.
In response to Dodd-Frank, a majority of respondents have: (1) outsourced compliance work, (2) hired additional counsel, (3) instituted new record-keeping policies, (3) hired additional staff, (4) changed marketing materials and (5) changed communication with investors. A minority of respondents have changed their funds' legal structures in response to registration and disclosure requirements.
Kaal also found “anecdotal evidence” to suggest that hedge fund managers are no longer as worried about Form PF disclosures as information “can be presented in ways that in effect 'flatten out' and 'sanitize' the disclosures.”
This, he writes, means such disclosures “could be less useful for FSCO and SEC evaluation adn their determination of the systemic risk posed by private funds. ”
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