With a staff of more than 350 and numerous specialised industry and service teams, Anchin Block & Anchin LLP is a full-service accounting, tax and advisory firm that provides investment companies, privately held businesses, and high net worth individuals/family offices with a wide range of traditional and non-traditional services.
“I was counting on 2018 being a banner year for hedge funds because what the market had been missing for so long was volatility and clearly there’s been a significant amount of it this year,” says Jeffrey Rosenthal, CPA, CGMA, is Partner–in-Charge of Anchin’s Financial Services Practice.
“One of the shortcomings I’ve heard from managers in recent years is that it’s been difficult for them to outperform the S&P in a market that has continued to go up with little volatility. This year we’ve seen a return of volatility but results have been mixed. Some funds are doing well but other funds still remain overly cautious.”
Anchin spends a lot of time working with clients to help them avoid common pitfalls of setting up a business. This might include advising on structuring, hiring, budgeting, thinking forward about growth, creating short- and long-term plans, and establishing best practices that include preparing to register with the SEC as an investment adviser.
“The cost of compliance continues to rise,” says Rosenthal. “I share my observations on what I have seen and what my other clients have done over the past 30 plus years I’ve worked in this industry. With respect to costs, especially for smaller sized start ups,; not just considering those costs associated with the fund but with those related to operating the management company; the expected overhead coats, the need to prepare a budget for a two to three-year period without counting on generating significant income or a salary for the manager himself. We sit down and go through all the costs and issues associated with running a business, and then we discuss structuring and tax planning.”
Cybersecurity and surviving an SEC inspection are issues that keep many new managers awake at night. There is nothing worse than a cyber-breach to destroy a manager’s reputation and his fund.
As mentioned earlier, volatility is likewise a potential concern. This is more to do with the fact that start-up managers want to ensure they keep the capital they have raised and be able to raise more. They want to build their business but at the same time, they don’t want to be perceived as market gamblers.
“They see some of the larger funds facing issues at a time when we’ve gone through the longest US equities bull market in history. But how much longer can that continue? A lot of start-ups are worried about volatility because they don’t want to be caught on the wrong side,” says Rosenthal.
He says that the rising trend of crypto fund strategies is something that as an auditor, Anchin is still exploring. “We’re not as yet fully comfortable with respect to valuations and custody. Both continue to improve, but there are many crypto-currencies on exchanges that are not regulated. Though we are not auditing these funds today, we are hopeful to add that capability shortly to compliment our tax service to these funds.”