MSN Money- Hedge funds reduced their gearing last year by about 10 per cent, according to a private survey by British regulators, lowering the potential for the failure of a major firm to create a domino effect across the financial system.
The survey by the Financial Services Authority of prime brokers, the main lenders to hedge funds, found gearing dropped from 1.86 times net equity in April to 1.66 times in October, said people briefed on the results.
The survey is the only official data regularly collected on borrowing by hedge funds, lightly regulated investment funds that typically disclose little data on their investments.
The findings, discussed earlier this month with investment banks in a private meeting, may help take the heat out of a campaign by continental European regulators for increased disclosure by hedge funds.
A meeting of the G8 industrialised nations next month will be pressed by Angela Merkel, German chancellor, to demand more transparency from the industry.
Germany, facing stiff resistance from the UK and US, where most hedge funds are based, has dropped proposals for a global database of hedge fund holdings.
However, Britain plans to propose international co-operation to turn the biannual survey into a tool for monitoring any threat to the financial system from hedge funds.
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