Hong Kong HKMA says hedge funds need close monitoring

Hong Kong HKMA says hedge funds need close monitoring

	Published : Tue, 30 Jan 2007 11:33 By : Agencies Print this Story

HONG KONG (XFN-ASIA) - Hedge funds' activity needs to be monitored closely because their 'risk-taking . . . is often excessive,' the Hong Kong Monetary Authority (HKMA) said.

It cited as an example US-based fund Amaranth Advisors which collapsed last year after reportedly incurring losses of some 6 bln usd.

HKMA said in a paper posted on the website of the Legislative Council (LegCo) that hedge funds have been growing rapidly in recent years and that their assets amounted to some 1.2 trln usd globally by the middle of last year.

Total hedge funds under management in Hong Kong stood at 33.5 bln usd as of March last year, it said.

HKMA officials will give the LegCo's financial affairs panel members a presentation next Monday on the agency's work.

'Research suggests that the systemic risks associated with hedge funds cannot be diversified away by investing in different types of hedge funds. The systemic implication is that when one type of hedge funds fails during extreme market conditions, other types of hedge funds with different strategies are also likely to fail or perform poorly,' Hong Kong's de facto central bank said in the paper.

HKMA said hedge fund trading in over-the-counter credit and equity derivatives markets is also a concern because such type of activities are hard to monitor and many stock markets around the world are at their historical peaks.

'Any considerable backlog in the confirmation of over-the-counter trading contracts is potentially very destabilising,' it said.

HKMA said local banks are alert to potential problems that can be posed by hedge funds, and are managing them well.

jun.concepcion@xfn.com

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