Hedge fund returns hit as baffling rules see margin costs skyrocket
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Hedge fund returns hit as baffling rules see margin costs skyrocket 02 May 2018London Reporter: Maddie Saghir
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Research from OpenGamma revealed that convoluted regulations are hindering hedge fund managers from boosting returns for their investors.
Hedge funds can now be managed by 70 percent additional margin because of regulatory changes, destroying returns, according to OpenGamma.
The findings of the analytics from OpenGamma also revealed that new rules make Eurex, CME, and ICE charge additional margin for large positions, which triggers an enormous cost.
This cost will ultimately be shouldered by the end investors, which rule makers are trying to protect.
OpenGamma revealed that the bigger the hedge fund, the bigger the problem, and hedge funds are most affected by those looking to exploit price differences between two related markets.
The analytics company suggested this is particularly concerning for global macro hedge funds who only returned 2.3 percent in the last year.
On the flipside, the research showed that those who carefully manage margin could control increases.
Additionally, the challenge is that understanding the specific nuances of new margin models requires significant investment at a cost-conscious time for fund managers.
CEO of OpenGamma, Peter Rippon, said: “Making fund managers post more cash to guard against another financial meltdown is all very well in principle.”
Rippon added: “But in practice, these rules trigger an enormous cost for the industry, which ultimately, will be shouldered by the very end investors rule makers are trying to protect.”
Rippon concluded: “At a time when investors are scrutinising every penny, the last thing any portfolio manager needs is to be hamstrung by unnecessarily posting more margin than they have to.”
“Some are already finding ways around this issue, which is why we are seeing more firms turn towards in-depth analysis in order to seek out opportunities to reduce margin.”
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