The world’s hedge fund industry has historically low levels of leverage, according to the Alternative Investment Management Association, the international trade body for the hedge fund
The world’s hedge fund industry has historically low levels of leverage, according to the Alternative Investment Management Association, the international trade body for the hedge fund industry.
Aima cited the most recent figures from the European Central Bank and the UK regulator, the FSA, both showing that leverage levels of hedge funds are in the region of one times net assets.
The recent Turner Review in the UK pointed out that hedge fund leverage is ‘typically well below that of banks’.
Andrew Baker, chief executive of Aima (pictured), says: ‘These figures, which are historically low, are typical of the industry worldwide and are much lower than leverage levels in the banks. In fact the Turner Review reported that leverage levels in the banks were in the order of 30 to 50 times.
‘Some policy makers mistakenly base their demand for regulatory reform of the world’s hedge fund industry on the idea that it is highly-leveraged, but as the recent figures from the ECB and the FSA show, it’s a complete myth.’
Aima also underlined the relative size of the global hedge fund industry compared to the banking sector. HedgeFund Intelligence suggests that global assets under management by the hedge fund industry were just over USD1.8trn at the end of 2008.
Baker adds: ‘In the overall scheme of things, the world’s hedge fund industry is dwarfed by the banks. There are some individual banks that have bigger balance sheets than the entire global hedge fund industry. And of course as these figures demonstrate leverage levels are also much lower in the hedge fund industry than in the banks. We at Aima hope that international policy makers will keep a sense of perspective when it comes to establishing the future regulatory framework for the industry.’
