Bloomberg News

Hedge Funds Pose Limited Risk to Financial Stability, FSA Says

August 21, 2012

Hedge funds pose a limited risk to the stability of the financial system, according to a survey by the U.K.’s Financial Services Authority.

Funds have a “strong ability to manage the liquidity of their assets and liabilities,” the FSA said in a report published on its website today. The regulator collected data on funds with a total of more than $380 billion under management.

Banks and other counterparties of hedge funds have “increased margining requirements and tightened other conditions on their exposures to hedge funds since the financial crisis,” according to the FSA report.

Hedge funds and private-equity firms have come under scrutiny from lawmakers who said they were partly to blame for the economic turmoil that followed the collapse of Lehman Brothers Holdings Inc. The European Union has approved measures to require hedge-fund managers to restrict bonuses and increase disclosure to regulators.

The hedge funds surveyed reduced their trading of interest rate derivatives to 2.7 percent of the global market as of March 2012, compared with 4.7 percent in 2010, according to the report.

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net.

To contact the editor responsible for this story: Christopher Scinta at cscinta@bloomberg.net


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