Credit hedge funds are nor ‘shadow banks’, says AIMA
Credit hedge funds should not be considered part of the ‘shadow banking’ sector, according to a new paper by the Alternative Investment Management Association (AIMA), the global hedge fund trade association.
AIMA’s research paper* highlights crucial differences between the key functions of a traditional bank and those of credit hedge funds and other non-bank financial institutions.
Credit hedge funds do not take deposits, do not offer daily liquidity nor otherwise hold themselves out as guaranteeing the return of the invested principal.
They manage their liquidity profiles by agreeing investor redemption terms which correspond to the liquidity profile of the underlying investments. They therefore do not engage in significant maturity transformation.
Crucially, hedge funds do not benefit from implicit or explicit taxpayer guarantees.
Andrew Baker (pictured), AIMA CEO, says: “Credit hedge funds – and hedge funds in general - do not operate in the shadows. Managers are extensively regulated, are subject to reporting requirements and do not engage in any significant sense in credit, liquidity or maturity transformation, so their activity is not ‘bank-like’. Credit hedge funds do not belong in the same category as banks, let alone ‘shadow banks’.”
The G20 mandated the Financial Stability Board (FSB) to develop recommendations to strengthen the oversight and regulation of the ‘shadow banking’ system in November 2010, but there has been considerable debate about what constitutes a ‘shadow bank’. Recent G20 language referred to 'money markets funds, securitisation, securities lending and repo activities, and other shadow banking entities '
Credit and credit-related hedge funds comprise up to one-third of the global hedge fund industry and use a very diverse range of investment strategies, ranging from fundamental credit analysis and arbitrage to the trading of complex derivatives.
- Special Reports
- By Location
- Asian Hedge Funds
- BVI Hedge Fund Services
- Bermuda Hedge Fund Services
- Canada Hedge Fund Services
- Cayman Hedge Fund Services
- Channel Islands Stock Exchange
- Future of offshore funds
- Gibraltar Hedge Fund Services
- Guernsey Hedge Fund Services
- Hedge Funds in Germany
- Hong Kong Hedge Fund Services
- Ireland Hedge Fund Services
- Isle of Man Hedge Fund Services
- Jersey Hedge Fund Services
- Jersey Private Equity Services
- Latin American Hedge Funds
- London Hedge Fund Services
- Luxembourg Hedge Fund Services
- Luxembourg Private Equity Services
- Malta Hedge Fund Services
- Middle East Hedge Fund Services
- Singapore Hedge Fund Services
- South African Hedge Fund Services
- Spanish Hedge Funds 2008
- Switzerland Hedge Funds
- US East Coast Hedge Fund Services
- US Hedge Fund Services
- By Subject
Latest Special Report
- By Location