Money managers under the microscope
There’s no shortage of resentment in London against the EU’s planned directive on hedge funds, but the Hedge Fund Standards Board on Monday said the rules could actually create one of the problems they’re set up to avoid.
At a CSFI debate at the beautiful Innholder’s Hall in the City, HFSB executive director Thomas Deinet pointed out that, as seen all too often in the credit crisis, in falling markets a fund’s leverage automatically rises.
Imposing leverage limits could mean funds breach these levels, forcing them to sell assets to reduce borrowing and exacerbating the market problem, hence exacerbating systemic risk.
“There’s a systemic concern,” he said. “A lot of managers will be hit by leverage limits and will be forced to sell, which is when you want people to hold onto assets.”