GLOBAL HEDGE FUND INDUSTRY LEVERAGE HAS DROPPED WELL BELOW BANKS, FUND ASSOCIATION NOTES

Posted April 21, 2009

LONDON – The hedge fund industry worldwide has reached historically low levels of leverage according to recent figures from the European Central Bank (ECB) and the UK securities industry regulator, the Financial Services Authority (FSA), cited by the Alternative Investment Management Association as debunking views of hedge funds as highly leveraged as a misconception.

The recent Turner Review in the UK pointed out that hedge fund leverage is “typically well below that of banks,” and the ECB and FSA figures say leverage of most hedge funds currently stands at just 1 times net assets.

“These figures, which are historically low, are typical of the industry worldwide,” says Andrew Baker, Chief Executive Officer, AIMA. “In fact, the Turner Review reported that leverage levels in the banks were in the order of 30 to 50 times. Some policy makers mistakenly base their demand for regulatory reform of the world’s hedge fund industry on the idea that it is highly-leveraged, but as the recent figures from the ECB and the FSA show, it’s a complete myth.”

The hedge fund industry, whose global assets under management are estimated at about $1.8 trillion, is smaller in size relative to the banking sector, adds Baker. “In the overall scheme of things, the world’s hedge fund industry is dwarfed by the banks,” he says. “There are some individual banks that have bigger balance sheets than the entire global hedge fund industry. And of course, as these figures demonstrate, leverage levels are also much lower in the hedge fund industry than in the banks. We at AIMA hope that international policy makers will keep a sense of perspective when it comes to establishing the future regulatory framework for the industry.”