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KOGER Releases New Study On Hedge Fund, PE Perception Of Risk

February 20, 2018

KOGER Inc., a global financial services technology company, has released a new study examining risk for hedge fund and private equity funds.  According to the study, more than half (56%) of executives at hedge fund and PE funds believe regulatory enforcement has decreased under the Trump administration, and 85% view the U.S. regulatory environment as more relaxed than it is internationally.

Seventy-three percent of asset managers cite cybersecurity threats as the biggest risk going forward in 2018, followed by a market correction (67%), geopolitical risks (38%), an economic downturn in the US (31%) and an economic downturn internationally (31%).

In the more relaxed US regulatory enforcement climate, 77% of funds say regulatory and compliance issues have been less of a concern than in the past.   52% of asset managers report that reputational risk has been a greater concern for their organizations than regulatory risk in the past six months.  However, 73% 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 vs. reputational risk, although that scenario could change in the future,” said 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% 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,” Sipko said

The online survey was conducted in January 2018 with 200 executives from hedge funds and private equity funds.  71% of the sample was composed of C-suite and senior executives and 29% of mid-level managers.  70% of respondents were from firms with $5 billion or more in total assets under management; 42% from firms with $10 billion or more AUM; and 16% from firms with $20 billion or more AUM.

In other data points:

  • GDPR: The majority (91%) 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.  63% of funds updated data protection policies and procedures; 62% hired a data protection officer; 53% conducted training with employees involved in data collection and processing; and 32% have set company policies for obtaining client consent to collect their data.  Yet just 18% have set company policies to destroy outdated client data, as mandated by the regulation.
  • Bitcoin:  64% of firms report they will consider exposure to digital currency in the next few years: 24% in two years or less and 28% in three to four years.  36% 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.  82% cite concern about reputational risk, 74% have cybersecurity concerns and 73% say there will be regulation and compliance challenges if they were to have exposure to digital currency in the next 24 months.

KOGER is a financial services technology company that works with global asset managers, financial institutions and fund administrators, providing a platform for investment fund administration and compliance.  The company’s NTAS platform supports more than 8,000 funds with $2 trillion in assets.