U.K. FSA: Hedge Funds No ‘Destabilizing Risk’

Feb 24 2010 | 3:24am ET

Hedge fund do not pose a systemic risk to the global economy, according to a survey produced by the U.K. Financial Services Authority.

The 50 biggest hedge fund firms in the U.K.—home to the overwhelming majority of the European hedge fund industry—have borrowings of only twice their total assets of US$300 billion, the October survey shows. The regulator concludes that hedge funds pose no “destabilizing risk,” a boost to British efforts to oppose the more draconian aspects of proposed European Union hedge fund regulation.

“Major hedge fund did not pose a potentially destabilizing credit counterparty risk,” the FSA reports. “Data shows a relative low level of ‘leverage’ under our various measures.”

No single hedge fund had more than $500 million in borrowings from any one bank without collateral, according to the FSA, while the largest had some $1 billion in total borrowings from several banks.

All told, hedge funds own just 0.9% of European equities, and fewer derivatives than reported by the Bank of International Settlements. Hedge funds do control some 10% of the global market in convertible bonds.


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