Regulatory requirements are biggest challenge for hedge fund CFOs, says SEI survey

Date: Wednesday, January 12, 2011
Author: Wendy Chothia, HedgeWeek

While the economy remains a concern, 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.

 The poll, conducted recently at the company's annual Hedge Fund CFO Forum, revealed that half of the CFOs attending the forum felt that addressing new regulatory requirements is the most significant challenge facing their industry over the next 12-18 months, while more than a third (39 per cent) see economic uncertainty as their biggest challenge.

The poll also revealed an ongoing shift in investor expectations, as 40 percent of CFOs said providing satisfactory risk data is the biggest challenge, outside of performance, in satisfying investors.

The findings point to 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, nearly half (44 per cent) 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," says Phil Masterson, Managing Director for SEI's Investment Manager Services division. "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."

No matter what the ultimate outcome, the poll points to a very real concern among CFOs related to the effect new regulations could have on their businesses. Nearly half (47 per cent) of those polled said they anticipate the new regulations will have a significant impact in their firm's profitability, which only furthers the necessity for managers to gain efficiencies and create scalable processes.