Since the 2008-09 global financial crisis, regulators rolled out multiple, substantial regulations aimed at mitigating systemic risk. Over time, popular opinion has held that investors largely favor the new rules while managers of hedge funds uniformly oppose them. However, a survey from Northern Trust Hedge Fund Services reveals that investors and fund managers express surprisingly similar views on regulation.
In a white paper about the survey findings, Minimizing Risk or Missing the Mark, Northern Trust Hedge Fund Services found that managers actually voiced slightly more optimism than investors about the effectiveness of the regulations adopted in the last five years.
59 percent of managers said they believe at least some of the regulations implemented over the past five years have helped decrease the likelihood and severity of another financial crisis, while 53 percent of investors held that view. 40 percent of investors said the new rules haven’t done anything to reduce the chance of another financial calamity or its severity versus 34 percent of managers.
"The widely held belief that investors and investment managers hold conflicting views about regulation emerged because the regulations typically fell into two camps," said Peter Sanchez, head of Northern Trust Hedge Fund Services. "They either changed market practices to limit what market participants can do, or they demanded more disclosure as a means of managing systemic risk. Dig a little deeper, however, and you discover – as the survey did – a far more nuanced and complex picture."
At the same time, regulations vary widely both in terms of whom they affect and how they are implemented. These differences impact how market participants on both sides view them, the study indicates. Some changes are seen as providing benefits to managers and investors alike.
Managers indicated they are especially concerned about the impact of new rules when they are implemented by multiple regulators. An example is central repository requirements for derivatives. Since derivatives are a complex instrument and many countries or jurisdictions have varied rules and procedures around them, these regulations can pose compliance challenges. While these regulations have the goal of limiting market risk, they can also dampen potential industry innovation.
The full whitepaper can be accessed at www.northerntrust.com/regsurvey
About Northern Trust Hedge Fund Services
Northern Trust Hedge Fund Services (NTHFS) is a leading provider of administration and middle office services for hedge funds and institutional investors with complex portfolios. NTHFS’ capabilities change the relationship between managers and their administrator though a full-service, front-to-back operating model that can support any asset or strategy with unparalleled flexibility in data management and reporting. Our Omnium™ technology platform offers clients unsurpassed access through real-time transparency, interactive utilities, and virtually unlimited strategy and attribution tagging capabilities. Our services are supplemented by an expert professional staff that understands the industry and our clients and backed by the scale, stability, and financial strength of one of the world’s most respected financial institutions. Our mission is to deliver Operational Alpha™, positioning clients for success by giving them the ability to focus on executing their strategies.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2015, Northern Trust had assets under custody of US$6 trillion, and assets under management of US$887 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures.