IOSCO published a report that presents the results of its fourth hedge fund survey. It provides an overview of the global hedge fund industry, based on data as of September 30, 2016. The report provides regulators with new insights into the industry, including the potential systemic risks this industry may pose to the international financial system.
This biannual survey has become an important resource for regulators, given the lack of public and global data on hedge fund activities. The survey facilitates the regular collection and analysis of hedge fund data, enabling regulators to share information and observe trends regarding trading activities, leverage, liquidity management, markets and funding in the global hedge fund sector. Since the first survey was conducted in 2010, data collection has expanded due to enhanced regulatory reporting regimes in some jurisdictions and fewer legal constraints around the use and sharing of data. The observations of the fourth survey can be highlighted as follows:
- In the two years since the previous results, global assets under management of hedge funds captured by the survey rose 24%. While this increase may reflect a combination of more widespread reporting across jurisdictions, market performance, and net fund subscriptions, it is not conclusive from the data.
- The Cayman Islands continues to be the fund domicile of choice, making up 53% of the global total by net asset value (NAV). This is largely unchanged from previous years.
- According to the data from the survey, equity long/short was the most widely used investment strategy, followed by global macro and fixed income arbitrage.
- Gross leverage of the hedge funds in the survey was 7.1x NAV. This figure includes the notional values of interest rate and foreign exchange derivative contracts. Removing those from the data, gross leverage was 3.1x and net leverage was 1.1x.
- At an aggregate level, there is a considerable liquidity buffer, suggesting that, in normal market conditions, hedge funds should be able to meet investor redemptions.
- As of the measurement date, 3.8% of hedge fund assets had constrained redemptions through the use of liquidity management tools such as gates, suspensions, or side pockets.
Related Link: Report (PDF)
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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