More than half (56 per cent) of executives at hedge fund and PE funds believe regulatory enforcement has decreased under the Trump administration, and 85 per cent view the US regulatory environment as more relaxed than it is internationally.
That’s according to a new study carried out by Koger which also finds that 73 per cent of asset managers cite cybersecurity threats as the biggest risk going forward in 2018, followed by a market correction (67 per cent), geopolitical risks (38 per cent), an economic downturn in the US (31 per cent) and an economic downturn internationally (31 per cent).
In the more relaxed US regulatory enforcement climate, 77 per cent of funds say regulatory and compliance issues have been less of a concern than in the past. Some 52 per cent of asset managers report that reputational risk has been a greater concern for their organisations than regulatory risk in the past six months. However, 73 per cent of respondents believe that a new administration is likely to strengthen regulatory enforcement in the future.
“It’s clear from the data that fund managers see the regulatory and enforcement climate as having eased in the US, especially compared with that in the UK and Europe. Today’s environment has led in the short term to somewhat less of a worry about compliance versus reputational risk, although that scenario could change in the future,” says Ras Sipko, KOGER chief operating officer. “In terms of general risk, cybersecurity emerging as fund managers’ top concern is understandable given recent data breaches in other sectors. In fact, 96 per cent of the survey respondents agree that many investment firms could be compelled to cease operations if private e-mails were made public, as has happened in other industries.”
The online survey was conducted in January 2018 with 200 executives from hedge funds and private equity funds. 71 per cent of the sample was composed of C-suite and senior executives and 29 per cent of mid-level managers. 70 per cent of respondents were from firms with USD5 billion or more in total assets under management; 42 per cent from firms with USD10 billion or more AUM; and 16 per cent from firms with USD20 billion or more AUM.
The majority (91 per cent) of asset managers have taken at least some steps to comply with the EU General Data Protection Regulation to safeguard consumer and investor privacy. The GDPR applies to all firms that do business in EU countries and will take effect in May 2018. Some 63 per cent of funds updated data protection policies and procedures; 62 per cent hired a data protection officer; 53 per cent conducted training with employees involved in data collection and processing; and 32 per cent have set company policies for obtaining client consent to collect their data. Yet just 18 per cent have set company policies to destroy outdated client data, as mandated by the regulation.
A total of 64 per cent of firms report they will consider exposure to digital currency in the next few years: 24 per cent in two years or less and 28 per cent in three to four years. Some 36 per cent of funds say they will never consider exposure to digital currency. Asset managers considering exposure to Bitcoin as a trading or investment strategy are concerned about the risk. Eighty per cent cite concern about reputational risk, 74 per cent have cybersecurity concerns and 73 per cent say there will be regulation and compliance challenges if they were to have exposure to digital currency in the next 24 months.
