Global fund sector leverage modest: IOSCO

Leverage remains contained in the global investment fund industry, according to new data from the International Organization of Securities Commissions (IOSCO).

The umbrella group of global regulators published a report, based on comprehensive regulatory data, which goes beyond hedge funds for the first time to cover all sorts of investment funds. The report found that leverage levels are limited overall.

“Leverage across asset management remains relatively low,” the report concluded.

Specifically, the report found that initial data indicated that open-ended investment funds “are not meaningfully leveraged by any metric.” While leverage is increasing at hedge funds, it remains below the levels of most banks.

Among closed-end funds, leverage also isn’t a concern, the report noted.

However, the report cautioned that the data doesn’t currently capture the leverage employed by private equity funds, as these funds “are more likely to place that leverage on the balance sheet of an investment target rather than on the fund’s own balance sheet.”

Additionally, while it noted that hedge funds appear to have adequate liquidity to meet potential investor redemptions, the report said it’s difficult “to provide a full picture of potential risks, including with regards to counterparty risks and the funds’ ability to meet margin calls.”

IOSCO said it expects to carry out a more in-depth analysis of funds’ liquidity in the future, as regulatory reporting requirements expand.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.