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Hedge fund assets up 34% since 2012: IOSCO

Date: Saturday, December 12, 2015
Author: James Langton,Investment Executive

Global survey says use of leverage modest in most countries

The global hedge fund industry's use of leverage is mostly modest and liquidity is not a concern, according to a survey by the International Organization of Securities Commissions (IOSCO).

The IOSCO survey found that, since 2012, the time of the its most recent hedge fund survey, hedge fund assets under management rose by 34% to US$2.6 trillion.

"Most of this growth can be attributed to changes in asset values, net inflows and fund structures," the survey report states. It notes, however, that some of that growth reflects more accurate reporting in participating jurisdictions.

Regarding some of the primary regulatory concerns, the survey says financial leverage used by hedge funds "looks modest" in most jurisdictions, except for the U.K. and France, where leverage is higher. Japan is the only country covered by the survey whose hedge funds do not use leverage.

The report cautions that comparisons between countries are hampered by the use of different leverage metrics in various jurisdictions. And, it notes, the results for individual countries can be skewed by a handful of individual funds.

As for fund liquidity issues, the survey found "there is no significant liquidity mismatch in hedge funds." It adds that managers of the funds "seem aware of the market liquidity of their portfolio positions, and they can generally make use of suspensions and gating to manage investor redemptions."

IOSCO says it will continue to discuss ways in which the survey can be improved to enhance regulators' understanding of hedge fund activities and their risks.

The survey collected data from 1,486 funds, up 42% from the 1,044 funds that participated in the survey in 2012.

The objective of the survey is to inform regulators about the hedge fund business, the funds' trading activities, leverage, funding and counterparty information. The survey, which is the only global look at the hedge fund industry from a regulatory perspective, represents part of IOSCO's effort to mitigate risks associated with hedge funds.