Bank of England Governor Andrew Bailey warned that multimanager hedge funds deploying leverage could pose a systemic risk during a volatile market episode.
The Managed Fund Association alts (MFA alts), representing the global alternative asset management industry, responded quickly. “Monitoring for risk in the financial system is important. Market-based finance is essential for economic growth, providing diverse sources of capital, improving market efficiency, and supporting businesses and investors, including pensions. The structure of hedge funds enhances financial stability, as hedge funds have no government backstop, no liquidity mismatch, and losses are siloed to an individual fund and its sophisticated investors. Regulators have visibility into the activity of hedge funds through existing regulatory reporting and the funds’ broker-dealer counterparties. Through these channels regulators can monitor for risks to the financial system,” said Jillien Flores, MFA Head of Global Government Affairs.
Speaking at the University of Chicago, Bailey said: “Multi-manager funds can make individual pods deleverage rapidly in stress conditions, which can exaggerate market moves.” He further warned of a potential backlash against further regulation, stressing that “there is no trade-off between economic growth and financial stability,” and cautioning that an overreaction could undermine the market reforms needed to address emerging vulnerabilities.
Global Trading/The Desk approached Millennium, Balyasny, Schonfeld, Bluecrest, Man Group, Brevan Howard, and Point72, but all declined to comment or respond to requests for comment.
Read more: https://www.fi-desk.com/office-of-financial-research-treasury-basis-trades-could-pose-systemic-risk/
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