IOSCO Reports on Leverage/Risk in Investment Funds Globally

In an Investment Funds Statistics Report, IOSCO published the results of a survey of its members in the asset management industry. The Report contains information on leverage, aggregate liquidity profiles, counterparty risk, borrowing risk and collateral needs. The Report includes analyses of approximately 100,000 hedge funds, open-ended funds ("OEFs") and closed-ended funds ("CEFs") from numerous countries.

IOSCO said that leverage across the global investment funds and asset management industries remain relatively low. IOSCO found that:

• hedge funds still have sufficient portfolio liquidity to meet redemption demands by investors in normal times, and noted that leverage decreased compared to the previous year;

• OEFs' leverage increased slightly, and the funds still do not have large aggregate exposures through derivative positions; and

• CEFs exhibit little to no leverage, with no significant change.

IOSCO said that the net leverage figures in the report were estimates subject to the accuracy and quality of the data reported, and so the actual leverage levels may be higher than reported. Further, IOSCO said that it is not able to measure "second-tier" leverage, such as the leverage a private equity fund may assume by investing in a corporate entity that is already significantly leveraged. IOSCO also highlighted the difficulty in providing a full picture of potential risks, including liquidity risks, counterparty risks and margin risk.