Our Perspective on Financial services report revealed that the majority (70.5%) of lawyers surveyed believe enforcement and compliance issues will be a key area driving litigation work for their firms.
Since 2008, regulators have demonstrated a commitment to bring enforcement penalties against wrongdoers and deter future harmful behavior. For instance, Kinetic Partners’ 2014 Global Enforcement Review report found that from 2006-2013, expenditure increased by 114% on average across the SEC, FCA and SFC. Much of these new expenditures go towards investment in specialized staff, market surveillance and technology. As the regulators continue to grow and their monitoring capabilities evolve, more firms and individuals are coming under scrutiny than ever before.
Additionally, 57.5% of applicable lawyers believed that hedge funds would be a key sector driving litigation work, compared to only 32.5% who cited private equity.
Even though the private equity market is substantially larger with regard to assets under management, this response may indicate that there are greater latent litigation risks in the hedge fund sector.
There are certain inherent elements of the hedge fund market that tend to make litigation in the sector more common, such as a greater number of transactions and more liquidity rights of investors. However, with increased regulatory scrutiny on hedge fund managers, particularly in the US, we believe that there will be more opportunities to litigate with regard to hedge funds than with private equity.