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The survey of close to 90 firms with around US$375 billion in assets found around half of fund managers allocate between 5% and 9.9% of their total expenditure on meeting regulatory requirements, with a further 16% spending more than 10% of total costs. The findings are consistent with surveys that AIMA has conducted globally.

A little more than half of all respondents said they expect to increase investments in compliance still further by 2020. Roughly half said they found complying with the raft of post-financial crisis regulations to be costly and complex.

Among the raft of post-financial crisis requirements, the new iteration of the Markets in Financial Instruments Directive (MiFID II), the cornerstone of European securities laws that applies internationally, was cited by 36% of respondents as having the greatest impact currently. Other impactful reforms include the global Basel III requirements (cited by 24%), the changes to the Japanese regulator's inspection regime (20%) and the Foreign Account Tax Compliance Act (FATCA), the US crackdown on tax evasion (13%).

The survey - which questioned asset managers and allocators based either in Japan or elsewhere in Asia but focused on Japan - also shed new light on asset flows and the evolving fund manager / investor relationship.

Almost three-quarters of investors said they would maintain their allocations to hedge funds and other alternative investments. There was greater interest among investors in newer funds, with 36% saying they would invest within the fund's first year and a further 39% providing seed funding. Just 8% of investors said they would only allocate to funds with a track record of three years or more.

Among allocators to alternative investment funds, the number one reason for making an initial investment was corporate governance, ahead of track record, longevity and other factors. When asked what would drive additional investments, 59% of investors cited strong performance and 33% referred to lower fees.

Close to 50% of fund managers said that having "skin in the game" - by investing a significant proportion of their own wealth in the fund - remained the main way of aligning interests with investors, while offering customised products to investors, via separately managed accounts or funds of one, was cited by a further 33%.

Among the wide-ranging survey's other findings, the policies of the Trump administration were perceived to be the most significant geopolitical challenge (cited by 31% of respondents), followed by China's slowdown and territorial disputes (20%). While 42% believed that a financial crisis of the magnitude of 2008 was unlikely to happen this year, 31% felt its chances could not be dismissed with the remaining 27% indicating a neutral stance.

AIMA Chief Executive Jack Inglis said: "The results of this survey demonstrate that the alternative investment industry in Japan is committed to addressing the operational challenges posed by MiFID II and other new regulations. While we support the investments in compliance that the industry is making, we will of course continue to make the case to regulators that the new requirements be applied proportionally, in order to avoid erecting unnecessarily high barriers to entry for new managers."

AIMA Japan Chair Ed Rogers added: "The annual AIMA/Eurekahedge survey makes two very interesting points - first, despite all of the negative press about hedge funds and the hedge fund industry, over 70% of respondents say they will not be changing their allocations to alternatives in 2017. Second, there is clearly more comfort to allocate to hedge funds at earlier stages of development, with the number of allocators needing a minimum three-year track record falling from 35% to 8%. Overall, this survey tells us that hedge funds will continue to see inflows from Asian institutional investors in 2017."

Eurekahedge Head Analyst Mohammad Hassan said: "The annual Eurekahedge/AIMA Japan survey has over the years been one of the most important sources of dedicated insights into key investor preferences among Japanese investors. Survey results for 2017 point towards a cautious investment outlook, a continued pushback on incentive fees, subdued new fund launch activity and concerns over regulatory compliance related costs. While allocation activity is expected to hold largely steady, survey results indicate reshuffling at the portfolio level in favour of Asia-ex-Japan, North American and European mandates with macro, equity long-short and relative value strategies being the most sought after."