Financial Stability Forum to Review Hedge Funds Amid Growing Concerns

Strategic Insights -

The Financial Stability Forum, a major global watchdog on financial risks, is set to undertake a review of hedge funds due to growing concerns about their influence in world markets. The review comes as hedge funds and funds of hedge funds attract increased investment, leading to a surge in leverage and raising fears about their stability. The review is driven by concerns that have been growing over the last six months, following rapid increases in money flows into hedge funds and anecdotal reports of rising leverage.

Key Takeaways:

  • The Financial Stability Forum, formed in February 1999, will review hedge funds at a meeting in Washington in September.
  • The review is driven by growing concerns about the influence of hedge funds and funds of hedge funds in world markets, which are attracting new investors.
  • The review aims to address the rising leverage in the hedge fund industry, which has seen a dramatic increase in assets but has failed to deliver on promised investment returns.
  • The surge in money flows into hedge funds has occurred at a time when leverage has increased, with banks and hedge funds of funds borrowing heavily.
  • Funds of hedge funds, which are attracting new investors, are also increasing leverage, contributing to the growing concerns about the stability of the hedge fund industry.
  • The review will focus on the impact of hedge funds and funds of hedge funds on financial stability, including their influence on world markets and their potential for contagion.

Statistics:

  • The review by the Financial Stability Forum will take place in September at a meeting in Washington in the US.
  • The surge in money flows into hedge funds has been rapid, with concerns growing over the last six months.
  • Assets in the hedge fund industry have increased dramatically, but investment returns have failed to meet expectations.
  • Leverage in the hedge fund industry has increased, with banks and hedge funds of funds borrowing heavily.
  • Funds of hedge funds are attracting new investment, increasing leverage and contributing to concerns about the stability of the hedge fund industry.

Sources:

  • "Financial Stability Forum"
  • Person familiar with the planned review (no date provided)