What Drives Dodd–Frank Act Compliance Costs for Private Funds?

Abstract

This article assesses the effects of Dodd–Frank Act compliance costs on the private fund industry. Using hand-selected compliance cost estimates from private fund advisers (N = 94), the study shows with two independent datasets that the number of funds managed by private fund advisers is associated with Dodd–Frank Act compliance costs. The size of registered private fund advisers as measured by assets under management is not associated with the per-unit cost of Title IV compliance and other independent variables as proxies for cost. These findings are consistent with the hypothesis that the cost of financial regulation under the Dodd–Frank Act brings increasing returns to scale. Private fund advisers’ use of single versus multiple investment strategies does not have an effect on Title IV compliance costs.