Thu, Feb 11, 2016
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. Credit Suisse cherry picks hedge fund ideas[more]

    From FT.com: Credit Suisse Asset Management plans to cherry pick profitable concepts from hedge funds with the launch in Europe of a “best ideas” strategy. The investment arm of the Swiss bank said the strategy will separate it from other funds blighted by “overcrowding problems”. It comes at a time

  2. Investing - Hedge funds bet on risks in U.S. blue-chip debt, Hedge funds bets against bank credit risk paying off, Tiger Global still likes Internet names, gets pointers from Jeter[more]

    Hedge funds bet on risks in U.S. blue-chip debt From WSJ.com: Hedge funds are betting the next bond sector to crack will be the $4.5 trillion market for the safest U.S. corporate debt. New York’s Perry Capital has placed a $1 billion wager against investment-grade bonds issued by 10 comp

  3. Short Selling - Hedge fund manager Kyle Bass is shorting real estate—again, Top US hedge fund has €80m short position in Paddy Power Betfair[more]

    Hedge fund manager Kyle Bass is shorting real estate—again From Fortune.com: He also predicted the mortgage crisis in 2008. Hedge fund manager Kyle Bass, who runs Dallas-based Hayman Capital, tanked the stock of a little-known real estate financier Friday by revealing that he is shorting

  4. Investing - Real estate secondaries sole 'bright spot' in 2015, As hedge funds stumble, one firm prepares to buy illiquid stakes[more]

    Real estate secondaries sole 'bright spot' in 2015 From IPE.com: The secondary market for property was the sole “bright spot” over the course of 2015, as hedge fund secondaries saw deals fall by two-thirds, according to a wide-ranging survey of the market. Setter Capital said 2015 saw th

  5. Opalesque Exclusive: Directors want to be considered trusted partners by new manager[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: A hedge fund director provides her perspective on emerging hedge fund managers. She will happily work with those who have set themselves up for future growth, s