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The decade following on from the onset of the 2008 global financial crisis has seen the size of
the global asset management sector more than double. The real economy has been the main
beneficiary of this growth as the asset management industry has provided new sources of
investment capital, while reducing the reliance on bank -intermediated credit funding.
Conversely, this growth has also increased the number of questions raised about the potential
risks to financial stability that investment fund activities may generate.
This report, covering not only hedge funds, but also open-ended and closed-ended funds, is the
first of its kind by IOSCO and is underpinned by a broad data survey to which 50 IOSCO
members have contributed; representing almost $ US50 trillion, or 67% of total asset under
management of the global investment funds universe. It contains information on hedge funds
as well as an initial analysis on open-ended and closed-ended funds, noting, however, that data
available to regulators (and thus also to IOSCO) on these latter two types of funds is currently
more limited in certain jurisdictions. Additionally, the report contains information on leverage
as well as on other areas of the investment fund industry including: aggregate liquidity profile,
counterparty risk, borrowing risk and collateral needs.
The report will be published on an annual basis with the aim of presenting insights on the global
investment funds industry and any potential emerging risks within it. As mo re jurisdictions
expand their reporting regimes, IOSCO expects the observations in this report to become more
representative of the entire investment fund industry, including the open-ended fund universe,
over time.
Leverage across asset management remains relatively low. Hedge Funds’ gross leverage, as
measured on a gross notional basis, stands at 12.4x net asset value, which, as reported in the
previous hedge fund survey, has increased from 7.8x. Their net leverage stands at 1.1x. Open-
ended funds’ gross leverage stands at 1.68x net asset value while their net leverage stands at
1.12x. Closed-ended funds’ gross leverage stands at 1.12x and net leverage stands at 1.03x,
noting however that these figures may obscure higher levels of possible leverage on the balance
sheet of the corporates in which private equity funds for example are invested.
Similarly, hedge funds appear, in aggregate, to have sufficient portfolio liquidity to meet
potential investor redemptions in normal times. However, due to several important caveats
including limited liquidity data for hedge funds and open-ended funds, it is difficult for the
report to provide a full picture of potential risks, including with regards to counterparty risks
and the funds’ ability to meet margin calls. As more jurisdictions implement changes to their
reporting framework, IOSCO expects to be able to conduct a more thorough analysis of
liquidity in the future.