Hedge funds do not appear to pose a systemic risk to the Australian economy, according to a report issued by the Australian Securities and Investments Commission. The report found that the surveyed hedge funds appear to use low levels of borrowing, implying that their leverage is unlikely to generate or contribute to systemic risk issues. The majority of the hedge funds use multiple prime brokers, diversifying their counterparty exposure among generally large financial institutions. Further, responses suggested that counterparty exposures and collateral practices are unlikely to contribute to any concerns of systemic risk.
Aggregated information sourced from commercial data providers indicates that the Australian hedge funds sector is mainly made up of funds with less than $50 million assets under management. Therefore, while the survey is representative of a substantial proportion of assets controlled by single-strategy hedge funds, a great majority of smaller funds are not represented by the survey. The Commission said that it might consider lowering the assets under management threshold for qualifying hedge funds in its next survey to capture more funds.
The main investors in the surveyed qualifying hedge funds are Australian wholesale investors. The scale of their investment in hedge funds relative to their total investments is minimal, noted the Commission, which will tend to reduce the likely systemic impact of any problems in the sector. Indeed, nearly 90 percent of investors in surveyed qualifying hedge funds are wholesale investors, with retail investors accounting for slightly over 10 percent.