WEST PALM BEACH, FL (www.hedgeco.net) – The Bank for International Settlements in Basel Switzerland has commented on the rising level of Banking Institutions� exposure to Hedge funds. According toBIS, while altogether banks had strengthened controls around hedge funds their exposure levels to hedge fund investment portfolios was on the rise. According to the annual BIS report, banks are instiff competition for the business of hedge funds, and such competition has not only led to increases in bank�s overall exposure to hedge funds, but has also produced a situation where the banks donot even know what the funds are doing.
BIS report stated, “Given the rapid growth in assets under management and the intensifying competition for prime broking business, the overall exposure of banks to the sector is arguably higher and the information flow less transparent.”
The businesses generated by hedge funds have become major sources for fees and other revenues. Banks have used prime brokerages to offer many different services to hedge funds such as stock lending and loans for derivative trading. BIS said that the similarity in the performance levels of hedge funds, along with the resulting competition between the funds, also means that they can only offer smaller benefits to their investors.
BIS further said in the report, “The remarkable similarity in the performance of funds with purportedly distinct investment strategies implies that, in practice, the diversification benefits to the investor might be considerably smaller than fund managers claim.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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