Speaking at the Australian Hedge Fund Forum in Sydney yesterday, ASIC commissioner Greg Tanzer explained that ‘systemic risk’ is the risk of a disruption to the financial services system that impairs all or part of the system or has the potential to impair economic production.
Mr Tanzer was releasing the results of the ASIC Report 370The Australian hedge funds sector and systemic risk, which is based on a 2012 survey of 16 local hedge funds and follows up a similar report released in 2010.
Almost half of the 16 surveyed hedge fund managers’ net asset value (NAV) is invested in Australia, he said – with North America and other Asia Pacific markets at about 18.5 per cent of NAV.
The report found that nearly 90 per cent of investors in the 12 funds with the largest amount of assets under management were wholesale, with superannuation funds the largest investor source at 41.1 per cent, said Mr Tanzer.
Of those 12 hedge funds, leverage was relatively low. When measured as gross market value against net asset value, leverage only increased from 1.25 times assets to 1.51 by 2012, said Mr Tanzer.
Australian hedge funds can also liquidate 92 per cent of their portfolio in less than 30 days, he added.
"While 99 per cent of their liabilities could be demanded in the same time period, suggesting potential liquidity problems in a crisis, all the funds can suspend redemptions," he said.
Hedge funds take up a very small percentage of the Australian managed funds market, Mr Tanzer said – of the $2.1 trillion in assets held by Australian managed funds, hedge funds only account for 3 per cent.
In addition, hedge funds hold just 0.4 per cent of the market capitalisation of the All Ordinaries Index, he said.
The largest turnover for Australian hedge funds was in sovereign bonds (224 times their long market value) and equity derivatives (125 times their long market value), he added.
