Treasury: Hedge Funds Not As Risky As Thought

Dec 18 2013 | 3:36pm ET

Hedge funds are perhaps not as risky as regulators feared when crafting new rules in the wake of the financial crisis, according to the U.S. Treasury Department.

Richard Berner, who heads the Treasury's Office of Financial Research, itself created in the wake of the crisis, said that a preliminary analysis shows that hedge funds do not present a systemic risk to the U.S. economy. Berner cautioned that the conclusions "are very tentative."

"While these results are very preliminary, they seem to contradict the idea that hedge funds typically employ risky strategies," Berner told the Brookings Institution.

The data comes from newly-required filings submitted by hedge funds now required to register with the Securities and Exchange Commission. That registration was imposed to allow regulators to monitor hedge funds and any risks they might pose to the economy.

The OFR looked at leverage levels, risk modeling and quantity of illiquid assets to reach its "very tentative" conclusion.

The hedge fund lobby leapt at the report, with Managed Funds Association CEO Richard Baker saying it "tracks with MFA's view that hedge funds currently do not pose a systemic risk."

The report comes as hedge funds are groaning under increased compliance costs, caused in part by the registration requirement.


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