FCA Hedge Fund Survey Finds Increased Leverage & Concentration

June 10th, 2015

The Financial Conduct Authority (FCA) recently published its bi-annual Hedge Fund Survey.  The review is intended to identify and mitigate emerging risks within hedge fund markets, and assess the probability of future failure.  The FCA examined 52 firms, managing $418 billion in assets as of September 2014.  The covered entities and their respective assets grew from $375 billion last March.

In the review, the FCA found that the sector remains “highly concentrated.”  More than half of gross leverage was attributed to the ten largest hedge funds, out of more than 50 total firms. The survey also found that gross leverage increased from 64 to 67 times net asset value.  Compared to the prior bi-annual survey conducted in March 2014, the FCA concluded that the hedge fund sector faced “increased exposure of funds to structured/securitized products and listed equities, and their smaller holdings of unlisted equities on the securities front. On the derivatives front, the funds’ gross exposure to IRDs and FX increased.”

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