Half of mid-tier hedge funds without compliance officer

One in two US hedge funds managing between US$1-5 billion does not have a full time compliance officer and only 20% have a dedicated risk manager, increasing trading-related risks to other market participants, new research has shown.

One in two US hedge funds managing between US$1-5 billion does not have a full time compliance officer and only 20% have a dedicated risk manager, increasing trading-related risks to other market participants, new research has shown.

Despite regulators in the US pushing for greater transparency and risk management since 2008, the report, from capital markets consultancy Woodbine Associates, found exactly 50% of firms surveyed reported having a full-time compliance officer. A further 17% were outsourcing the role, and 33% subsuming the function into another staff members’ responsibilities.

Matt Samelson, principal at Woodbine and report author, said the focus of this group of funds on revenue meant less emphasis was put on transparency and compliance compared to other participants.

“I'm surprised at the low level of full-time risk management and compliance staff in mid-tier hedge funds,” he told theTRADEnews.com. “These are collateral responsibilities of another professional in many cases and I expect solicitation of additional assets from institutional investors will drive greater transparency and push many to dedicate more resources in these areas.”

But, despite perceived opportunity for third-party vendors to target this group with risk products, Samelson said mid-tier hedge funds would likely be inclined to use internal resources to manage risk.

There are close to 350 mid-tier hedge funds in the US, representing close to 4% of US-based hedge funds, and the report’s finding were based up on interviews with 23 executives from these firms.

The report also shows mid-tier hedge funds have a high degree of trust for their prime brokers. Asked, ‘do you trust your prime brokers?’ 85% of respondents agreed and 8% strongly agreed. This, Samelson said, was linked to a broader number of services being used through prime brokers.

“This group of hedge funds has greater trust in their brokers compared to larger hedge funds and especially asset managers,” he said.

“This is likely due, in part, to the relationships fostered from heavy reliance on core services integral to business operation such as finance, securities lending, clearing and custody.”

«