Capital Hungry Hedge Funds

Post-financial crash challenges and opportunities

JERRY LEES, EXECUTIVE CHAIRMAN, LINEAR INVESTMENTS

First published 07 Jul 2015

The challenges facing emerging hedge fund managers are well-documented. The sheer volume of regulation following the financial crisis has had a significant impact on the hedge fund operating model. Rules such as the Alternative Investment Fund Managers Directive (AIFMD), the European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive II (MiFID II) are all going to ramp up the costs of doing business in the European Union.

Meanwhile, the Dodd-Frank Act subjects managers to additional reporting obligations, and indeed centralised clearing of over-the-counter (OTC) derivative transactions. In addition, the industry is rapidly institutionalising. As such, these institutional allocators expect institutional standard infrastructure, which can of course be costly for a start-up or emerging hedge fund. In short, establishing a hedge fund is not a straightforward undertaking any more.