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.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...