Regulatory impetus includes the SEC registration requirements in the US (Dodd Frank), the Alternative Investment Fund Managers Directive (AIMFD), and the Foreign Account Tax Compliance Act (FATCA). These pressures, combined with greater investor due diligence and demands for transparency, are forcing hedge funds to change the way they operate.

Investors and regulators want to see reliable policies and controls in place across the hedge fund value chain. Areas of scrutiny include: valuation policies and procedures; safekeeping and controls surrounding funds' assets; trading policies and procedures, including ethical guidelines; and compliance policies supporting multiple regulatory demands. Valuations are a particular concern for regulators in Europe and the US. PwC research shows while most US alternatives funds have a valuation committee in place, there is a lack of consistency in materials and almost one third do not supply information to the boards of their offshore funds.

Mike Greenstein, global alternatives leader, PwC, says: "Investors look for the 'right' kind of risk in their portfolios; they'e not looking to expose themselves to reputational or operational threats. Senior management want to insulate their organisations from damage to credibility and brand, so things that may not have been the focus of a firm's infrastructure a few years ago have become critical in the face of the double threat of investor activism and regulatory change”.

Beyond improving processes and formalising controls, hedge funds are finding that their talent needs are broadening while many technology platforms are not fit for purpose. For example, in the UK, 90% of asset managers categorise their compliance recruitment activity as active or very active.

"The industry has always been resource constrained but we're now seeing top performers with compliance, tax and valuation skills in ever greater demand", says Greenstein. "Those with credible risk, legal, finance and investor relations expertise are also highly sought after. In Europe, base salaries for experienced compliance staff have doubled in recent years as hedge funds compete for resources in a limited talent pool. Investing now and ring-fencing key talent will pay off".

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