NYAIR Survey: Industry's Regulatory Environment Here To Stay

Oct 9 2017 | 6:23pm ET

Despite widespread criticism about the post-crisis regulatory environment on Wall Street and broad promises by the Trump administration to roll back onerous rules, a new survey by the New York Alternative Investment Roundtable finds that industry participants don’t foresee any lessening of regulations or oversight.

The survey was conducted at the NYAIR’s September event, entitled A Fireside Chat About the State of Markets and Hedge Funds and featuring Omega Advisors’ Leon Cooperman.

At the event, Cooperman discussed his own experiences with hedge fund industry regulation and some of the changes that he sees taking place. “The problem with the system is that there is no losing party pays in America like they have in the UK… the government uses taxpayer money to fund their peccadillos and they have sovereign immunity, so you can’t sue them,” Cooperman said to Roundable attendees, according to a statement.

The comments were regarding Cooperman’s decision to pay $4.9 million to settle insider trading charges levied against him by the SEC despite no admission of any wrongdoing. 

“The two people who were more instrumental in my case are no longer at the SEC and are now in private practice, and that’s their game. Their game is to try and bring down someone with a reputation and take that accomplishment to get a job in the private sector making $1 million a year,”  Cooperman added. 

The survey revealed that NYAIR members feel there will not be any change or lessening of current regulations or regulators’ oversight of the alternative investment industry. Key findings of the survey:

  • When asked where the regulatory environment within the U.S. is heading, 57% of respondents believe that, despite the current administration’s desires to ease regulations, there ultimately will not be any change or lessening of current regulations or regulators’ oversight of the alternative investment industry; while 43% of respondents think that, given the current administration’s desires to ease regulation and the firing of high profile regulators such as U.S. Attorney Preet Bharara, Dodd-Frank will ultimately be repealed and regulators will become less aggressive in their oversight of the alternative investment industry.
  • With the stock market now at an historic high, yet Americans’ confidence in the presidency and Congress at an historic low, respondents were asked whether they believe events at the White House will negatively affect what is going on in the markets and, if so, when. 80% of respondents think that Americans’ lack of confidence in the presidency and Congress will impact the market, while 20% believe the lack of confidence will not impact the market. Of those who believe the market will be impacted by this lack of confidence, 15% believe this will occur within 2017; 59% believe it will happen in 2018; another 15% think it will be in 2019 and 11% believe it will occur in 2020 or later.
  • When asked whether they believe the current hedge fund model will stay the same or be forced to evolve over the next few years, 82% of respondents said that, despite a compression of returns and losses experienced by much of the industry in recent years, institutional investors will likely continue investing in hedge fund because of their desire for diversity and returns that are uncorrelated to the equity markets; while 18% of respondents think that hedge fund firms will only survive if they are going to be forced to offer more liquid type strategies similar to those of mutual funds.
  • Asked what the most significant change taking place within the hedge fund industry is when it comes to specific strategies, 78% of respondents believe it is the increasing popularity of quant funds, given their ability to take advantage of big data and ongoing advancements in technology; 16% think it is the difficulty macro funds are having in generating returns due to the ongoing strength of markets and a lack of any major shifts in the global economy; and 6% think it is the waning popularity of activist hedge funds, which is only likely to increase if the Brokaw bill being reintroduced in the Senate succeeds in its effort to force hedge funds to reveal equity stakes or short positions greater than 5% in a company within four days.
  • When it comes to fees within the hedge fund industry over the next three years, 79% of respondents think that fees will be lowered to a 1 and 20 structure; 20% of respondents think that fees will remain at what has become the standard 2 and 20 structure; and only 1% of respondents think that fees will continue inching up above the industry’s current standard of 2 and 20.
  • Asked what poses the biggest risk of destabilizing markets, 59% of respondents said that they believe it is Korea; 8% think it is central bank policies; 5% think it is weather related events such as Hurricane Harvey and Hurricane Irma; 4% think it is Iran and 24% believe it is “other” things.
  • When asked about investor sentiment towards active vs. passive investments, 59% of respondents said that, despite the fact that the returns of active managers have been less than stellar in recent years, they believe investors will stay the course and continue investing into actively management investments such as hedge funds; while 41% of respondents think that investors have lost confidence in actively managed investments and will begin moving more money into passive investments such as ETFs and index funds.

Of the respondents to the survey, 29% were fund managers, 16% were allocators, 15% were risk management or trading, 27% were service providers, and 13% were other industry participants

Originally founded as the New York Hedge Fund Roundtable in 1999, the NYAIR is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers. In addition to industry topics, the Roundtable highlights a different New York City area charity or philanthropy regularly to expose members to organizations that may interest them. 

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...