In a panel discussing the outlook for new and emerging managers, a panellist warned those starting out in hedge funds, that the harsh reality is around 50 percent of all startups will fail in their first year.
He stated that cost, as well as regulation, should be at the forefront of a startups business strategy. He said: “Investors have the second Markets in Financial Instruments Directive (MiFID II) and the General Data Protection Regulation (GDPR) always in mind.”
He added: “The breadth and speed of regulatory change has been considerable, huge burden on a lot of companies and it will not go away.”
Another panellist said: “Platforms are absolutely crucial, irrespective of jurisdiction and fund administration. Having that all in one place has been a genuine development in market. IT compliance in regard to platforms covers so much in how your fund is structured.”
He furthered recommended startups consult Alternative Investment Management Association which, he said, have “sound practices for platforms”.
He warned: “It’s getting so expensive to outsource—don’t lose control, outsourcing that is out of sight is where many managers fail. But there’s ways of moving your IT towards your compliance. A bad expense ratio will destroy your funds.”
In terms of regulation, another panellist, stated to record everything. She said: “Produce something you can document, have something you can show investors, and keep each quarter up-to-date, they will not just take your word. If you can’t justify your actions and choices, you’re not doing enough, you must have detailed reporting.”
Another panel on legal, compliance and regulatory issues for emerging managers, agreed that having a good quality CEO is key.
One panellist said: “Portfolio managers have largely worked with trade AIFMD, MiFID II GDPR—you will be spending so many days working on compliance for these regulations, it may be worth getting someone else in as a partner that can run your interference for you when you should be thinking about making basis points for your investors.”
