FSA Says Hedge Fund Defaults Pose Little Systemic Risk

Jul 28 2011 | 9:29am ET

The U.K. Financial Services Authority says hedge fund defaults pose little threat to the country’s financial system as their “footprint” within markets is “generally small.”

The FSA’s conclusions are based on the most recent iteration of its Hedge Fund Survey, which polled 50 investment managers with a combined US$390 billion AUM. The watchdog estimates the survey represents about 20% of global hedge fund industry AUM.

The survey finds that counterparty credit exposures to hedge funds “remain concentrated amongst a small number of banks,” but that those banks “appear to have tightened financing terms for hedge funds post-crisis, increasing their resilience to hedge fund defaults.” The average potential exposure of any one bank in the survey to any one hedge fund is US$50 million.

The FSA considers the gross value of hedge fund exposures relative to the size of markets and concludes “the footprint[s] of hedge funds captured in the HFS are generally low and have not changed significantly between the different surveys, suggesting these hedge funds are not the biggest category of players in most markets.”

The survey suggests hedge funds have a somewhat larger presence in the global convertible bond market (about 7%), and in the “much larger and more systemically important” interest rate and commodity derivative markets (about 4% and 6%, respectively).

On the issue of leverage, which the FSA considers a key to “accessing systemic risk,” the report finds its use had not changed significantly in aggregate compared to earlier reports.


In Depth

Q&A: Neil Azous Talks Global Macro Investing

Nov 24 2014 | 12:41pm ET

Neil Azous is the founder and managing member of Rareview Macro, an advisory firm...

Lifestyle

Griffin Selling Chicago Apartment

Nov 26 2014 | 11:40am ET

Citadel Investment Group’s Kenneth Griffin is making clear to his estranged wife...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.