Hedge funds do not create a systemic risk, concludes FSA

FEARS over the systemic risk posed by the UK’s largest hedge funds are overblown, a Financial Services Authority (FSA) report suggested yesterday.

Widespread concerns over the borrowing used by fund managers were dampened by figures showing the likes of Brevan Howard Asset Management and GLG Partners use 200 per cent gearing on average, a relatively low amount. In a survey, the FSA found the 50 biggest investment houses controlled less than one per cent of European stockmarkets. The results cast doubts on political warnings over the reach of hedge funds as the European Union prepares to introduce punitive new regulation through the Alternative Investment Fund Managers directive.

Andrew Baker, chief executive of the Alternative Investment Management Association, said: “We endorse the FSA’s key finding that hedge funds are unlikely to be a major source of systemic risk.”

Hugh Hendry, founder of Eclectica Asset Management, told City A.M. “The dream is to find an asymmetric trade. I’m excited at the moment because I think I’ve found one in the credit space.”