Fri, May 29, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

No hedge fund is ‘systemically important' says AIMA

Thursday, July 07, 2011

Todd Groome
Opalesque Industry Update: The global hedge fund association, AIMA, announced today that no hedge fund manager based or operating in the US or elsewhere currently poses a risk to financial stability. Its announcement comes as the Financial Stability Oversight Council is expected to clarify the criteria by which it will determine which non-bank financial companies may be deemed systemically important, and thus subject to increased regulatory scrutiny, including additional oversight by the Federal Reserve.

“We believe that no single hedge fund firm today is sufficiently large, leveraged, complex or interconnected that its failure or financial stress would cause a market disruption sufficient to destabilise the financial system,” said AIMA Chairman Todd Groome.

“We note that the UK’s Financial Services Authority has stated that, based on their risk reporting framework, none of the large hedge funds they have examined currently poses ‘a significant systemic risk to the financial system’. We also note that the FSA’s hedge fund survey has found that major hedge funds ‘did not pose a potentially destabilising credit counterparty risk’, and that the levels of leverage employed were ‘relatively low’, which ‘suggests a contained level of risk’.”

More than 1,400 individual hedge funds closed or were liquidated in an orderly manner through 2008, said AIMA. “It has been acknowledged by many regulators and policymakers that those closures had virtually no impact on hedge fund firms’ counterparties or the stability of the financial system at large,” said Mr Groome. “This difficult period provided a very up-to-date and significant stress test concerning hedge fund risk to markets."

AIMA also pointed to the fact that the hedge fund industry is comparatively small, dispersed and quite heterogeneous compared to other much larger sectors of the financial services industry. The global hedge fund industry comprises approximately 10,000 hedge funds, managing a combined $2 trillion in assets, whereas some individual financial institutions’ balance sheets are much larger than the entire global hedge fund industry.

“Hedge funds collectively represent a relatively small group of extremely heterogeneous and often very small businesses, and even their collective positions and exposures are not such that individual failures pose a risk to financial stability,” said Mr Groome. AIMA also stressed that hedge fund firms employ significantly lower levels of leverage than banks and some other financial institutions.

Mr Groome said: “The 2008 experience shows that hedge funds are ‘safe to fail’, even if they are not fail-safe. Moreover, hedge fund activities do not typically contribute to pro-cyclical market dynamics; they tend to be contrarian or to look for market inefficiencies and, through their investment activities tend to make markets more efficient. As such, hedge funds enhance diversity of market behaviour, and thus contribute positively to financial stability.”

While stressing that no single hedge fund firm should be deemed systemically important, AIMA reiterated its strong support for the registration of hedge fund managers. “By having managers register with and report to the Securities and Exchange Commission and other national authorities, including FSOC, more data will be available to allow better monitoring and assessment of markets. As such, hedge funds can contribute to a more effective systemic risk monitoring system,” added Mr Groome. Source

Beverly Chandler

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: New TMT hedge fund adopts the long-term approach[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Adam Parker founded Center Lake Capital LLC in New York in November 2014. Before that, he was portfolio manager at Point State Capital (the successor fund to Dr

  2. Regulatory - Hedge funds face tax as Iceland poised to end capital controls, Comment: Why alternatives need more transparency, not enforcement[more]

    Hedge funds face tax as Iceland poised to end capital controls From Bloomberg.com: Hedge funds and other investors who bought claims against Iceland’s failed banks face a tax that targets the lenders’ estates as the government prepares to unveil its plan for exiting capital controls in t

  3. Investing - Nelson Peltz’s Trian Fund Management reduces position in Legg Mason, Biotech investors up big amid bubble talk, Hedge funds increase exposure in healthcare[more]

    Nelson Peltz’s Trian Fund Management reduces position in Legg Mason From Octafinance.com: Trian Fund Management has filled a SC 13D/A form regarding Legg Mason, Inc. Per Nelson Peltz’s Trian Fund Management’s filing, the filler reported decreased stake in the company by -11.05% to 11,03

  4. Opalesque Exclusive: BMO launches multi-strat '40 act fund[more]

    Bailey McCann, Opalesque New York: As we reach new market highs, investors are looking for a way to diversify and protect their portfolios from a potential market correction. Liquid alternatives are rapidly gaining ground as a critical tool for investors to use to mitigate downside risk. The BMO

  5. All hedge fund strategies rebounded last week as market conditions normalize[more]

    Komfie Manalo, Opalesque Asia: After a difficult start this month, all hedge fund strategies ended last week in positive territory, as the Lyxor Hedge Fund Index gained 0.9% (-0.2% MTD, 3.3% YTD). According to Lyxor AM’s latest Weekly Briefing, in t

 

banner