In July 2014, KPMG announced that it had completed the acquisition of Rothstein, Kass and Company. According to the 2014 Preqin Global Hedge Fund Report, prior to the acquisition both KPMG and Rothstein Kass each serviced 13% of all single manager hedge funds; post-acquisition, KPMG now becomes the most utilised auditor within the hedge fund industry based on funds serviced, displacing EY from the number one spot.
In recent years, the ‘Big Four’ audit firms: EY, PricewaterhouseCoopers, KPMG and Deloitte have been the most active hedge fund auditors. In 2013, according to Preqin’s Hedge Fund Analyst, together they serviced around 67% of the total hedge fund industry, with EY and PricewaterhouseCoopers having the largest share with 21% and 20% respectively, and both KPMG and Rothstein Kass servicing 13% of the market.
The growth of Rothstein Kass has been impressive in recent years, as the company has established itself as one of the most prominent and specialized service providers within the hedge fund industry in North America. In 2012, they broke the stranglehold of the ‘Big Four’ audit firms, servicing 20% of all new launches. By 2013, they had moved ahead of rivals KPMG and Deloitte in terms of total funds serviced. With an enviable list of clients such as Paulson and Co., Brigade Capital and Pennant Capital, Rothstein Kass proved to be an attractive target for KPMG.
Although KPMG has almost doubled their market share in North America, they still trail behind PricewaterhouseCoopers and EY both in Europe and in Asia. It remains to be seen whether KPMG will look to strengthen their market share in these regions in the near future. In Europe, both PricewaterhouseCoopers and EY both service more funds. Within Asia, PricewaterhouseCoopers and EY are each looking after almost twice as many funds as KPMG.
In terms of the overall ranking of auditors to the hedge fund industry, until recently it had looked like a ‘two-horse race’ between EY and PricewaterhouseCoopers. However, the recent acquisition of Rothstein Kass has significantly strengthened KPMG’s position within the alternative investment market, changing the dynamics of the marketplace considerably with KPMG now firmly in the top spot.
In response to the increase and complexity of regulation across the hedge fund industry, coupled with overall growth, the hedge fund industry continues to be an important market sector for the major audit firms given the potential revenue streams to be generated from fees associated with auditing, consulting, tax and advice.