# Compliance costs

`kaal:entity:compliance-costs`

**Status.** derived

This node is assembled mechanically from the 35 claims that carry the concept tag `compliance-costs`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

35 claims across 12 works, 2010 to 2024.

**2010**

- [1664809-023](https://wulfkaal.github.io/claims/1664809-023) [mechanism/evidenced] -- Legal uncertainty generates transaction costs, and European company boards will inevitably incur costs minimizing the information asymmetries created by different legal regimes that may or may not apply to their company.
  > Legal uncertainty generates transaction costs.
  Richard W. Painter, Wulf A. Kaal, Extraterritorial Application of US Securities Law – Will the US Become the Default Jurisdiction for (2010). SSRN: https://ssrn.com/abstract=1664809

**2011**

- [1806252-033](https://wulfkaal.github.io/claims/1806252-033) [failure/argued] *(failure mode)* -- Requiring advisers to adopt written policies to prevent and detect securities law violations presumes those violations are foreseeable, yet because Dodd-Frank substantially changed securities law, the foreseeability of potential violations is itself further curtailed.
  > But because securities law has been substantially changed under the Dodd—Frank Act, the foreseeability of potential violations could be further curtailed.
  Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252

**2013**

- [2317580-023](https://wulfkaal.github.io/claims/2317580-023) [empirical/evidenced] -- The additional CIA requirements, and especially the self-reporting provisions, force companies to spend additional resources and at times to alter their day to day operations after signing.
  > All of these additional requirements, especially the self-reporting provisions, require companies to
  Wulf A. Kaal, Elizabeth R. Malay, The Role of Corporate Integrity Agreements in the Expansion of Fiduciary Duties (2013). SSRN: https://ssrn.com/abstract=2317580

**2014**

- [2389416-005](https://wulfkaal.github.io/claims/2389416-005) [mechanism/evidenced] -- Dodd-Frank Act compliance costs reduce the profitability of hedge fund advisers' investment management companies, but registration and disclosure requirements do not appear to reduce the returns of the hedge funds themselves.
  > However, while Dodd-Frank Act compliance costs affect the profitability of hedge fund advisors' investment management companies, registration and disclosure requirements under the Dodd-Frank Act do not seem to affect the returns of hedge funds (Kaal 2013a).
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416
- [2389416-006](https://wulfkaal.github.io/claims/2389416-006) [empirical/evidenced] -- Analyst estimates place the annual cost of Dodd-Frank Act registration and disclosure compliance for hedge fund advisers in a range from $50,000 to $400,000 per year.
  > Some analysts estimate that the cost will range from $50,000 to $400,000 per year (Kaal 2013a and 2013b).
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416
- [2389416-038](https://wulfkaal.github.io/claims/2389416-038) [empirical/argued] -- The finding that Dodd-Frank Act registration does not depress hedge fund returns is consistent with prior evidence that higher administrative costs are only a second-order effect of the regulation.
  > Kaal (2013a) finds non-robust evidence that the higher administrative costs imposed by the Dodd-Frank Act are a second-order effect of the regulation, thereby not affecting the overall returns of hedge funds.
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416

**2016**

- [2739479-004](https://wulfkaal.github.io/claims/2739479-004) [empirical/evidenced] -- Prior survey evidence indicates that the hedge fund industry adjusted well to the Dodd-Frank registration and disclosure requirements, and that the actual impact of those rules was much less significant than the private fund industry had feared.
  > In summary, prior surveys suggest that the hedge fund industry seems to be adjusting well to the registration and disclosure requirements of Dodd- Frank. The impact of the registration and disclosure rules appears to be much less significant than feared by the private fund industry.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-009](https://wulfkaal.github.io/claims/2739479-009) [failure/evidenced] *(failure mode)* -- Smaller private funds spend more on compliance than larger ones, both as a share of AUM and relative to operating costs, which means increasing regulatory scrutiny falls disproportionately on smaller funds.
  > Smaller private funds spend more on compliance costs than their larger counterparts—both as a percentage of AUM and in relation to oper- ating costs; this suggests that increasing regulatory scrutiny disproportionately impacts smaller funds.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-023](https://wulfkaal.github.io/claims/2739479-023) [mechanism/argued] -- Rather than outsourcing required compliance work, the industry is on some metrics increasingly performing that work in-house, a shift consistent with the SEC's emphasis on compliance officer liability and post-2012 enforcement actions aimed at compliance departments.
  > The compar- ative data also suggest that—at least under some metrics—rather than outsourcing required compliance work, the industry is increasingly doing such work in-house.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-024](https://wulfkaal.github.io/claims/2739479-024) [empirical/evidenced] -- Between 2012 and 2015 the annual cost of Dodd-Frank compliance doubled for many survey respondents, moving from the $50,000 to $100,000 range into the $100,000 to $200,000 range.
  > In fact, the data suggest that the annual cost of compliance doubled for many survey respon- dents, moving from the $50,000 to $100,000 range to the $100,000 to $200,000 range.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-025](https://wulfkaal.github.io/claims/2739479-025) [mechanism/argued] -- The shift of reported compliance hours out of the 251 to 500 hour band and into the 100 to 250 hour band suggests the industry became more effective at satisfying Dodd-Frank reporting obligations between 2012 and 2015.
  > One possible explanation is that the industry became more effective in satisfying the reporting obligations of Dodd-Frank in the interim between 2012 and 2015.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-026](https://wulfkaal.github.io/claims/2739479-026) [condition/evidenced] -- If compliance hour requirements are treated as a proxy for compliance cost, the survey data indicate that the cost of complying with all federal regulation, not just Dodd-Frank, increased between 2012 and 2015.
  > Assuming that compliance hour re- quirements are proxies for compliance costs, the comparative data in Figure 9, like that in Figure 7, suggest that the cost structure for all federal regulation increased between 2012 and 2015.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-027](https://wulfkaal.github.io/claims/2739479-027) [mechanism/evidenced] -- Private fund advisers increasingly factor the regulatory structure into decisions about the size of their assets under management, a shift partly explained by the higher post-Dodd-Frank cost structure, since higher AUM and the corresponding fee revenue can offset higher compliance costs.
  > Private fund advisers are increasingly taking the regulatory structure into account in determining their AUM. This can par- tially be explained with the higher overall post-Dodd-Frank-Act cost structure for the industry, which is shown in Figures 6, 8, and 9.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-031](https://wulfkaal.github.io/claims/2739479-031) [mechanism/argued] -- Because quarterly Form PF filing costs roughly $10,000 per reporting fund, the $1.5 billion threshold that triggers quarterly filing gives advisers a direct cost reason to factor that threshold into the AUM decision.
  > At an average quarterly cost of around $10,000 for each reporting fund, the Form PF190 costs may make participants more likely to consider the Form PF reporting threshold in the AUM decision.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-033](https://wulfkaal.github.io/claims/2739479-033) [mechanism/argued] -- Although Dodd-Frank compliance costs fall primarily on the investment adviser rather than the fund, advisers have increasingly built fund structures that pass most of those compliance expenses through to their reporting funds.
  > Although Dodd-Frank Act compliance costs predominantly affect the investment advisers of private funds rather than the funds themselves, investment advisers have increasingly created fund struc- tures that allow them to pass most of their compliance expenses through to their reporting funds.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-034](https://wulfkaal.github.io/claims/2739479-034) [failure/argued] *(failure mode)* -- Passing compliance costs through to reporting funds applies those costs against the funds' trading revenues, which produces an overall adverse impact on fund earnings and so shifts the burden of regulation onto investors.
  > These pass-through costs are applied to the funds' trading rev- enues, which results in an overall adverse impact on the funds' earnings.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-035](https://wulfkaal.github.io/claims/2739479-035) [empirical/evidenced] -- Among advisers who saw an earnings effect, the attributed cause shifted from direct expense to opportunity cost between 2012 and 2015, with opportunity cost references rising from 9 percent to 32 percent while increased expense references fell from 53 percent to 36 percent.
  > and 2015, investment advisers saw the costs on fund earnings increasingly asso- ciated with opportunity costs (rates rose from 9% in 2012 to 32% in 2015) and not with increased expenses (rates fell from 53% in 2012 to 36% in 2015).
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-036](https://wulfkaal.github.io/claims/2739479-036) [empirical/evidenced] -- By 2015 a clear majority of respondents, 93 percent, attributed effects on their investment management company's profits to additional expenses associated with the Dodd-Frank Act, and no respondent reported no additional expenses, compared with 19 percent in 2012.
  > Figure 19 illustrates that a clear majority of respondents in 2015 (93%) be- lieved that the profits of their investment management company were affected by additional expenses associated with the Dodd Frank Act.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-037](https://wulfkaal.github.io/claims/2739479-037) [empirical/argued] -- Even though the Dodd-Frank Act's overall regulatory impact on the private fund industry was low, the compliance costs generated by the evolving regulatory environment carry many unexpected consequences with the potential to further reshape industry practices.
  > Despite the low regulatory impact of the Dodd-Frank Act overall, this article indicates that compliance costs associated with the evolving regulatory environment for private fund advisers have many unexpected consequences that could have the potential to further shape industry practices.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-038](https://wulfkaal.github.io/claims/2739479-038) [predictive/speculative] -- Changing AUM preferences driven by compliance costs could eventually produce industry consolidation aimed at cost savings, or drive a shift toward family offices that manage no third-party assets and therefore escape the regime.
  > from a policy perspective, changing AUM preferences associated with compliance costs could eventually result in consolidations that facilitate cost savings or precip- itate a trend towards family offices that do not manage third-party assets.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2739479-040](https://wulfkaal.github.io/claims/2739479-040) [failure/evidenced] *(failure mode)* -- Barriers to entry for small firms are becoming an increasing problem in the private fund industry under the evolving post-Dodd-Frank legal environment, with references to such barriers rising from 24 percent of respondents in 2012 to 33 percent in 2015.
  > The 2015 survey responses suggest that barriers to entry for small firms are becoming increasingly a problem for the private fund industry in the continuously evolving post-Dodd-Frank-Act legal environment.
  Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479
- [2816408-005](https://wulfkaal.github.io/claims/2816408-005) [mechanism/argued] -- Regulation could depress reported private fund performance through a compliance cost channel: because monthly performance is reported net of fees, a significant increase in compliance costs would show up immediately in monthly performance figures.
  > First, regulation could decrease performance by increasing compliance costs. Because private fund advisers' monthly performance is reported net of fees, a significant increase in compliance costs could have an immediate effect on monthly performance.
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408
- [2816408-006](https://wulfkaal.github.io/claims/2816408-006) [mechanism/evidenced] -- Dodd-Frank Act compliance costs fall most heavily on advisers managing the largest number of reporting funds, because private fund advisers incur roughly $10,000 in compliance cost per reporting fund.
  > Because private fund advisers incur about $10,000 compliance cost per reporting fund (Kaal 2013a), Dodd-Frank Act compliance costs are highest for those advisers in our dataset with the highest number of reporting funds under management.
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408
- [2816408-009](https://wulfkaal.github.io/claims/2816408-009) [empirical/evidenced] -- Surveys of private fund managers conducted in 2012 and 2015 show that a clear majority of managers believed increased compliance costs negatively affect the industry.
  > Kaal (2013a, 2016b) demonstrated in surveys of private fund managers conducted in 2012 and 2015 that a clear majority of private fund managers believed that increased compliance costs negatively affect the industry.
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408
- [2816408-010](https://wulfkaal.github.io/claims/2816408-010) [empirical/evidenced] -- Private fund managers themselves distinguish costs from returns: a majority of surveyed managers opined that Dodd-Frank Act registration and disclosure requirements do not affect the returns of the private fund industry, even though compliance costs affect the profitability of their management companies.
  > the majority of private fund manager respondents opined that registration and disclosure requirements under the Dodd-Frank Act do not affect the returns of the private fund industry (Kaal 2013a, 2016b).
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408
- [2816408-011](https://wulfkaal.github.io/claims/2816408-011) [empirical/evidenced] -- Estimates of annual Dodd-Frank Act compliance cost for private fund advisers range from $50,000 to $400,000 per year.
  > Some estimates suggest that compliance cost will range from $50,000 to $400,000 per year (Kaal 2013a and 2015b).
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408
- [2816408-031](https://wulfkaal.github.io/claims/2816408-031) [empirical/evidenced] -- Prior work by Kaal shows that Dodd-Frank Act registration and increased compliance requirements only marginally increase the cost structure of private funds, and finds non-robust evidence that higher administrative costs are a second-order effect that does not affect overall private fund returns.
  > Kaal (2013a, 2015c) finds non-robust evidence that the higher administrative costs imposed by the Dodd-Frank Act are a second-order effect of the regulation, thereby not affecting the overall returns of private funds.
  Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Private Fund Performance  – Evidence from 2010 – 2015 (2016). SSRN: https://ssrn.com/abstract=2816408

**2017**

- [2959730-038](https://wulfkaal.github.io/claims/2959730-038) [predictive/argued] -- Lower operating costs enabled by blockchain platform models will especially enable new and future managers to enter the market because start up and compliance costs can be significantly reduced.
  > the lower operating costs enabled by the platform models will especially enable new and future managers to enter the market because the start-up costs and compliance costs can be significantly reduced.
  Wulf A. Kaal, Blockchain Applications and Fee Structure Developments in Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2959730
- [2998033-029](https://wulfkaal.github.io/claims/2998033-029) [mechanism/argued] -- Blockchain platforms for fund formation lower start up and compliance costs, which especially enables new and future managers to enter the market rather than merely benefiting existing managers.
  > the lower operating costs enabled by the platform models will especially enable new and future managers to enter the market because the start-up costs and compliance costs can be significantly reduced.
  Wulf A. Kaal, Blockchain Innovation for Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2998033
- [2998097-015](https://wulfkaal.github.io/claims/2998097-015) [empirical/evidenced] -- The second survey found long-term negative effects of Title IV: 34.9 percent of respondents expected it to affect the industry over the next five years through additional expenses, and 32.6 percent expected it to create barriers to entry for new private fund market entrants.
  > More than a third of respondents (34.9%) opined that Title IV will affect the private fund industry in the next five years because of additional expenses, and nearly a third (32.6%) opined that it will create barriers to entry to private fund market entrants. 50% of
  Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097
- [2998097-016](https://wulfkaal.github.io/claims/2998097-016) [failure/evidenced] *(failure mode)* -- The SEC's efforts to clarify and optimize the post Dodd-Frank framework cut both ways: they supported industry compliance with the revised standards while simultaneously creating uncertainty and higher costs for the industry.
  > At the same time, there is sufficient evidence in the findings of this study suggesting that the SEC's implementation and clarification of Dodd-Frank Act registration and reporting requirements for private funds also created uncertainty and higher costs for the industry.
  Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097
- [2998097-017](https://wulfkaal.github.io/claims/2998097-017) [mechanism/argued] -- The industry largely absorbed the increased expenses of the Dodd-Frank Act by increasing the use of pass-through expense terms in adviser and fund arrangements, which is why advisers increasingly attributed earnings effects to opportunity costs rather than to expenses between 2012 and 2015.
  > This was consistent with anecdotal evidence suggesting that the industry largely absorbed the increased expenses associated with the Dodd-Frank Act through the increasing use of pass-through expense terms when structuring investment adviser and private fund relationships between 2012 and 2015.128
  Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097

**2019**

- [3405660-032](https://wulfkaal.github.io/claims/3405660-032) [mechanism/argued] -- By letting funds implement their own risk monitoring systems, indirect regulation avoids compliance costs that would otherwise threaten the profitability needed to justify the 2 and 20 fee structure to clients.
  > Indirect regulation enables the hedge fund industry to avoid costs by implementing their own risk monitoring systems and measurements. Accordingly, indirect regulation helps address the danger that hedge funds might not be sufficiently profitable to justify their 2/20 fee structure to clients.
  Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660
- [3411110-008](https://wulfkaal.github.io/claims/3411110-008) [failure/asserted] *(failure mode)* -- The compliance burden attached to operating an alternative trading system, including fees, consumer protection, examination, and books and records requirements, is typically cost prohibitive for startups.
  > ATS compliance costs are typically cost prohibitive for startups.
  Wulf A. Kaal, Samuel Evans, Blockchain-Based Securities Offerings (2019). SSRN: https://ssrn.com/abstract=3411110

**2024**

- [4957318-001](https://wulfkaal.github.io/claims/4957318-001) [mechanism/argued] -- Legal accumulation is produced by a specific legislative practice: new regulations are layered over existing ones without repealing outdated provisions. The resulting corpus is more complex and less transparent, which raises compliance costs for individuals and businesses.
  > However, the practice of layering new regulations over existing ones without repealing outdated provisions leads to legal accumulation. This accumulation makes the legal system more complex and less transparent, increasing the compliance costs for individuals and businesses.
  Wulf A. Kaal, The Future of Law - Dynamic Web3 Governance (2024). SSRN: https://ssrn.com/abstract=4957318

## Verify

Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust.

    curl -s https://wulfkaal.github.io/entities/compliance-costs.md | sha256sum

**Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.