On February 23, the UK Financial Services Authority (FSA) published a report entitled “Assessing possible sources of systemic risk from hedge funds.” The report sets out the FSA’s key findings and conclusions from two surveys it conducted in October 2009—the Hedge Funds as Counterparties Survey (HFACS) and the Hedge Fund Survey (HFS). The FSA intends to continue conducting these surveys every six months to help monitor trends in hedge funds.

The HFACS has been conducted every six months since 2005. It asks some of the largest FSA-authorized banks with exposures to hedge funds about their credit counterparty risks.

The HFS was introduced in October 2009 to complement the HFACS. It surveyed the 50 largest FSA-authorized investment managers representing about 20% of the global industry. The survey asks questions about the assets the firms managed and the larger funds for which they undertake management activities.

The report’s conclusions were that: “The HFACS data suggests that on 31 October 2009 major hedge funds did not pose a potentially destabilising credit counterparty risk across the surveyed banks. HFS data shows a relatively low level of ‘leverage’ under our various measures and suggests a contained level of risk from hedge funds at that time.”

The FSA stated that it hoped that its “work in this area can contribute to the ongoing debate about” the proposed EU Alternative Investment Fund Managers Directive (AIFMD). The clear message sent by the FSA in making this statement is that the survey results, which indicate the low systemic risk posed by the hedge fund sector, should be preferred to the preconceptions of some of the politicians and others promoting aspects of the AIFMD proposals.

To read the report in full, click here.