No systemic threat from hedge funds, says ASIC

Australian hedge funds do not pose a systemic risk to the Australian financial system right now, a report from the Australian Securities and Investments Commission (ASIC) has claimed.

Although wholesale investors are the main users of hedge funds, investments are small compared to total investments — which reduced systemic risk, ASIC said.

Leverage at an average gross market value of 1.51 times net asset values in 2012 was not a problem ASIC said, and funds had enough liquidity to manage their obligations - ninety-two per cent of surveyed funds' portfolios could be liquidated in 30 days.

While creditors could demand 99 per cent of fund liabilities in less than 30 days, funds' ability to suspend redemptions meant this was unlikely to impact systemically.

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The year's redemptions were also deemed to have little impact due to size relative to net asset values.

ASIC said listed equities were hedge fund managers' biggest exposure — 32 per cent were held in Australian-listed shares — and assets represented only a small portion of Australia's $2.1-trillion managed funds industry as most funds hold less than $50 million.

The survey, which assessed 12 qualifying hedge funds representing approximately 42 per cent of assets in single-strategy hedge funds in Australia, was indicative of the entire Australian, market according to ASIC.