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European hedge funds pay ‘premium’
11 December 2013
Hedge fund managers in Europe have bigger costs and regulatory worries than their US counterparts, according to new research
The gap between European and US hedge funds is widening,
according to a new survey by Citi's prime finance
European hedge funds are paying a "premium" running their
firms, the 2013 Business expense benchmark survey found. Their
management company costs appeared to be higher than the same
charges being realises by US firms.
Hedge funds with $100m, $500m, $5bn and more than $10b AuM are
paying a premium of at least 20% in expenses compared to their
Marketing costs account for "significantly more" of a
management company's total expenses in Europe than in the US at
nearly all major AuM levels.
When the survey looked to Asia Pacific, it found managers based
in this region faced lower company expenses than their US and
European counterparts. Asia survey respondents were only
small-sized firms with AuM of $100m, $500m and $1.5bn, but in
each case these firms were being run at a "substantial"
discount to similarly-sized firms based in the US and
Aside from costs, the survey found that European managers were
more concerned than their counterparts about the impact of
regulations on their business. They said that registration,
compliance and reporting rules in the US and Europe would have
a severe impact, and that new OTC derivative rules and Fatca
would have a moderate to significant impact.
Interestingly, European managers were more concerned about US
regulation than US-based managers.
Hedge fund managers are particularly concerned about the
patchwork quilt of rules emerging under the EU Alternative
Investment Fund Managers (AIFM) directive. Some market
participants fear that non-European hedge funds are likely to
be deterred from operating in Europe.
A US-based hedge fund manager that does business in Europe
recently told Global Investor/ISF that it was trying
to find a way to avoid having to meet the requirements of the
When looking across all regions, the survey found that managers
need at least $300m AuM to break even and that firms with lower
AuM would not be able to cover their management company costs
without additional capital or incentive fee payouts.