US regulators concerned about leverage in large hedge funds
Apr 19, 2016 01:40 AM EDT
On Monday, a working task group was created to collect and analyze data on privately held firms that will report on asset management. The move was done by the heads of major US financial regulatory agencies as they are having concerns on the concentration of leverage for large hedge funds.
But according to Reuters, the Financial Stability Oversight Council did not designate any asset managers as 'systemically important.' Also, on Monday, they updated the two-year old review of risks to the US financial system posed by the hedge, mutual and other funds' liquidity, leverage, and redemptions.
Yahoo reported that the working group, consists of staffers of member agencies, will report by the end of the year with counterparty exposures, margin investing, trading strategies, and possible standards for measuring leverage. Meanwhile, Managed Funds Association said it hopes to have a dialogue with the formed group. It added that the industry is smaller than many other parts of the market and hedge funds' leverage is lower than those of the banks.
CNBC published that the council also took notice of the liquidity and redemption risks, saying it would wait to see how the SEC implement funds' rules proposed a year ago. In a statement, they said they will review and consider whether risks to financial stability remain. They added that "(they) will take into account how the industry may evolve in light of any regulatory changes." Moreover, the council suggested there are steps to be considered in the handling of funds.
The SEC has proposed that mutual funds and exchange trade funds are required to set up programs for managing liquidity risks and broaden disclosures about their liquidity and redemption practices. The financial regulatory agencies and investors are concerned that the market sell-off could result in a situation where some funds could not sell assets quickly enough.