New banking regulations known as Basel III are increasing financing costs for hedge fund managers and other alternative asset managers, according to a survey of asset managers.
Financing costs have risen for half of the asset management firms already and 75 percent expect costs to go up even more in the next three years as more banks implement the Basel III standards, the survey said..
Basel III regulations are designed to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. The regulations, which have to be implemented by the banks by April 2019, were developed after the 2008-2009 financial crisis to provide more stability to banks.
The survey of the impact of the new regulations on hedge fund and alternative asset managers included 78 alternative asset managers with a total of more than $400 billion in AUM. "Accessing the Financial Power Grid: Hedge Fund Financing Challenges Under Basel III and Beyond" was compiled by the Alternative Investment Management Association (AIMA), the global representative body for alternative asset managers, and S3 Partners in New York City, a financial data, analytics and services firm.
According to the survey, financing costs for alternative asset managers have gone up 10 percent in two years in many cases.
“New bank capital regulations are creating downstream financing challenges and opportunities for asset managers and hedge funds,” says Bob Sloan, CEO of S3 Partners. “The survey clearly shows how plugging into the financial power grid is getting more expensive.”
Sixty-seven percent of fund managers have had to cut the amount of cash they keep on their brokers’ balance sheets. Over the last two years, most alternative asset managers have either maintained or increased the number of prime brokers they use, with four being the average, according to the survey.