Neatly following on from the latest developments in the ongoing AIFM saga is the publication by the FSA on ‘Assessing possible sources of systemic risk from hedge funds’.
The FSA conducts two different surveys every six months: Hedge Funds as Counterparties Survey (“HFACS”) – which has been running for 5 years; and Hedge Fund Survey (“HFS”) – introduced for the first time last October. The publication sets out key findings – which is basically that hedge funds do not impose any material risk – based on surveys in October 2009.
The HFS survey took in 50 of the largest managers covering (‘touching’ is the expression used in the report) over $300bn of hedge fund AUM, representing approximately 20% of the global market. The analysis shows that for the surveyed hedge funds: the average cash borrowing is 202% of net equity; the aggregate footprint was mostly below 3% for the majority of asset classes; and that the assets of the funds could be liquidated before their liabilities became due.
The HFACS survey looked at the counterparty risks between the funds and banks. The findings showed that the maximum potential credit exposure any one bank had to one hedge fund was less than $500m and that the largest hedge fund in terms of aggregate credit exposure was just over $1bn across a number of banks. In the opinion of the FSA these are manageable in the context of the overall credit risk and capital requirements of the banks.
The report references the much criticised Alternative Investment Fund Managers Directive with the FSA expressing the hope that this report, and the continuation of the surveys on a six monthly basis, contributes to the ongoing debate about the Directive.
The document is barely a dozen pages in length and is quite readable – see link below.
