The amount of risk taken by Australian based hedge funds has risen steadily over the past four years, according to ASIC’s 2014 hedge fund survey.

The median gross leverage ratio of hedge funds has increased from 1.7 times NAV in 2012 to 2 times NAV in 2014 – ASIC says it is watching this figure as part of its remit to assess risk in the financial system, but that it was relatively low compared to international averages.

The amount held in hedge funds as a total of all $2.4 trillion invested in managed funds has risen from 2 per cent in 2010 to 4 per cent now ($95.9 billion). Of this $83.7 billion is invested in single hedge funds and 0.5 per cent is in fund of hedge funds.

As a contrast to the growth in leverage, the geographic exposure of assets held by Australian hedge funds has increased since ASIC’s first survey of hedge funds in 2010, with the proportion of assets held in Australia declining in proportion to that held in North America and Asia.

The survey reveals the relative success of the largest hedge funds.

The average return for the largest 27 hedge funds was 15.6 per cent to the end of September 2014, compared to 7.8 per cent two years earlier. Across all 473 registered hedge funds the average return was only 4.2 per cent, compared to 3.7 per cent two years ago.

Listed equities and cash are the two most common assets held by Australian hedge funds, while the most common strategy employed by managers was equity long/short (53.8 per cent), with multi-strategy in second place (10.6 per cent) and fixed income in third place (9.5 per cent)

ASIC has undertaken the survey as part of an initiative of the International Organization of Securities Commissions for members to survey their jurisdictions’ largest hedge fund managers to better understand the systemic risk these funds pose.

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