ASIC today provided a snapshot of the Australian hedge funds sector.

The 2014 hedge funds survey was representative of the state of the larger hedge funds, with the assets of the 27 surveyed qualifying funds representing approximately 44% of the assets held by single-manager funds in Australia.

This survey adds to a survey conducted in 2012 which found that there was not any strong evidence that hedge funds pose significant systemic risk. While that remains the case, there have been some interesting developments in the hedge funds sector.

Key points:

• Hedge funds manage only a small share of Australia’s $2,407 billion managed funds industry. Single-manager hedge funds ($83.7 billion) and funds of hedge funds ($12.2 billion) managed 3.5% and 0.5% of all Australian managed fund assets respectively.   More than half of these hedge funds hold less than $50 million each.

• The gross leverage ratio (gross notional exposure to NAV) for hedge funds has increased since 2012. The median gross leverage ratio in 2014 was two times NAV, compared to 1.7 times NAV in 2012.  The level of leverage for surveyed hedge funds is relatively low compared to other jurisdictions.

• Retail direct investors accounted for 17% of the investors by NAV in the surveyed hedge funds.  Surveyed hedge funds reported that nearly 49% of investors by NAV accessed hedge funds through an IDPS.  This change in IDPS participation since the ASIC’s 2012 survey was attributed to a range of factors including managers' lack of detailed information about the investor types and changes to how managers classify investors.

• The surveyed hedge funds reported large exposures to interest rate derivatives, with a gross notional exposure of more than $64 billion as at 30 September 2014.

• The largest geographic exposure was to North America with 29% of NAV invested there.  Australia and Asia (ex-Australia) were also significant regions for the funds' investments with each receiving 26% of the total NAV.

By asset class, listed equities were the surveyed fund managers’ greatest exposures with net investments valued at more than $26.3 billion. This exposure was substantially higher than the second largest asset class (cash, at $5.7 billion). Listed equities and cash were also the two largest asset classes reported in the 2012 survey.

The hedge funds had positive net applications of $5.1 billion over the 12 months to 30 September 2014. This was composed of $10 billion in applications and $4.9 billion in redemptions.  The median net applications were positive in every month of the year to 30 September 2014.

Download

Report 439 Snapshot of the Australian hedge funds sector (REP 439)

Background

In 2010 and 2012, the International Organization of Securities Commissions (IOSCO) called on its members to survey their jurisdictions’ largest hedge fund managers to better understand the systemic risk these funds posed and to gain insights into the hedge fund industry.

In 2014, IOSCO again called on its members to survey their large hedge fund managers. ASIC's 2014 hedge fund survey collected data from hedge fund managers operating in Australia with more than US$500 million under management. The aggregated data collected from these managers was submitted to IOSCO’s global hedge fund survey project.

Related reports

Report 370 The Australian hedge funds sector and systemic risk (REP 370) (refer: 13-254MR) (September 2013)