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A look at the next 12 months for private fund compliance

October 5, 2021

 

By: Curtis Flippen, Senior Director, Foreside

Every sector has been significantly impacted by the COVID-19 pandemic, and the private fund space is feeling bruised as we face new challenges associated with the delta variant.

From limited in-person meetings to the impact of remote working and changes to regulatory requirements, we can expect private funds to square up against a new set of tests in the next 12 months. Specifically, for compliance departments at private funds, these challenges will result in higher operational costs across the board moving into 2022. With merger and acquisition deals continuing to rise, the reintroduction of in-person due diligence meetings, and the continually changing regulator landscape, managers can expect a significant uptick in their operational expenses over the next 12 months.
Here are the main trends we expect across the private fund compliance space going into 2022:

Increased face-to-face meetings and M&A

  • The M&A sector is climbing and shows no signs of slowing down – SPAC, tech, and PE-backed M&A globally reached an all-time YTD high of $1.77 trn in April. Returning to in-person tours will allow for greater depth to due diligence processes, and both a timelier, and more costly, compliance lift for M&A deals.

Regulatory scrutiny on the rise

  • Changes to research fee structures and shareholder reporting will add complexity and cost to firms across the board as demand for transparency from both regulators and investors alike continues to become a major factor for compliance teams.
  • The looming threat of a MIFID II-like transparency policy for US-only fund shops, as well as the recent Marketing Rule from the SEC, highlight newfound scrutiny by regulators across the private fund space that will last well into 2022.

What to expect over the next year

For private fund managers of all sizes, facing increased deal due diligence, operational cost spikes, and regulatory scrutiny, the most effective way to weather the storm will be through leveraging technology. Whether you’re a manager of global trillion-dollar fund or a small domestic fund manager, the next 12 months will test fund shops of all sizes. It will drive private funds to lean on tech partners to be able to leverage money where it matters the most for them – on the trading desk.

This article is not a solicitation of any investment product or service to any person or entity. The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.