Hedge Fund Monitor
Complexity
Complexity may be reflected in the scale and scope of a hedge fund’s operations. Hedge funds generally have significant flexibility in their operational and investment activities. For example, investment positions may include multiple geographies, asset classes, long and short positions, public and private market investments, and over-the-counter (OTC) derivatives that may embed significant leverage or illiquidity. The opaqueness of investment strategies, investment positions, and counterparty relationships make it difficult for regulators and counterparties like prime brokers to fully understand and monitor risk exposures. The higher the complexity, the more difficult, costly, and time consuming it may be to unwind a failed hedge fund’s investment positions under a period of market stress. Measures of complexity include the number of investment strategies, asset classes, investment positions, and geographies within an investment portfolio; and the amount of OTC derivative volume.
Derivative volume traded over the counter by size cohort (percent)
Skip the ChartThe data are aggregated responses to SEC Form PF. Blank or null values are intentional to avoid potential disclosure of proprietary information of individual filers. Only responses from Qualifying Hedge Funds are included. See additional definitions and methodology on the SEC Form PF Data Sets page of the Hedge Fund Monitor.
The percent of derivative volume traded over-the-counter (OTC) is based on SEC Form PF question 24(b). The percent is a simple average of reported values for each size cohort. OTC derivatives are privately negotiated, non-standard contracts, in contrast to exchange-traded derivatives, which are standardized contracts. The latter are more likely to have greater liquidity and less complexity compared to the former. Size cohorts are based on hedge funds’ ranking each quarter by gross assets.
Series Used
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Suggested CitationOffice of Financial Research, "Hedge Fund Monitor," refreshed monthly and quarterly, https://www.financialresearch.gov/hedge-fund-monitor/ (accessed ).