The FSA has published a paper which is entitled Assessing possible sources of systemic risk from hedge funds. The paper reports on the findings of the October 2009 hedge funds as counterparties survey (HFACS) and the hedge fund survey (HFS).
The HFACS has been running semi-annually for five years. It surveys some of the largest FSA authorised banks with exposures to hedge funds about their associated credit counterparty risks. The HFACS mainly focuses on the credit channel for systemic risk.
The HFS was introduced in October 2009 to complement the HFACS. It asks 50 of the largest FSA authorised investment managers about the hedge fund assets they manage and about the larger individual hedge funds for which they undertake management activities. The HFS mainly focuses on the market channel for the potential systemic risks posed by hedge funds.
The results from the HFACS suggests that on 31 October 2009 major hedge funds did not pose a potentially destabilising credit counterparty risk across the surveyed banks.
The results of the HFS show a relatively low level of leverage and suggests a contained level of risk from hedge funds at that time.
Whilst both surveys showed no clear evidence to suggest that, from the banks and hedge fund managers surveyed, any individual fund posed a significant systemic risk to the financial system at the time, this position could change and future surveys will be an important tool in identifying emerging risks.
The FSA’s intention is to repeat both surveys at six month intervals to build a time series of data that will help it monitor trends in hedge funds as they relate to systemic risk.
View Assessing possible sources of systemic risk from hedge funds, 23 February 2010