There’s another reason why hedge fund fees may not come down anytime soon, and it’s not because investors are begging for the high performance they think they’ll get. According to Greenwich Associates, about 95% of hedge funds polled said their compliance costs rose in 2005 and about 50% say the costs will rise again in 2006. And some say they’ll offset the additional expense by charging higher fees -- something the retail industry has been doing since forever: passing on higher costs to their customers.
The Greenwich poll fond that 39% of HFs said compliance officer salaries raised costs by between 10% and 25% in 2005, while 36% kept the increase below 10% by finding cheaper means of getting things done. For about half of those polled, the 10% to 25% increase in expenses was a one-shot deal, related to compliance start-up costs.
A bigger problem facing newly installed compliance officers, says Greenwich’s Karan Sampson, director of hedge funds, is getting management to listen to them. “When founders of a hedge fund are told they have to do such and such by compliance officers, that could be like having an employee tell the boss what to do, and that might not go over well,” Sampson told Reuters.