Reuters – Lending to hedge funds is not as risky as exposure to leveraged buyouts by private equity funds, which like corporate borrowing a few years ago poses a bigger risk to investment banks, ABNAmro told Reuters.
Growing expectations of a stock market peak sometime this year and worries about higher interest rates around the world are prompting investors to focus on risks.
“Leverage (borrowing) in the hedge fund system is lower than it was in late 1998 probably because market volatility has been low in recent years and there have been fewer opportunities for hedge funds,” said Kinner Lakhani, analyst at ABN Amro.
Analysts estimate hedge funds have borrowed only two to three times their assets over the last couple of years.
That compares with an average of around 10 times in 1998 when U.S. hedge fund Long Term Capital Management collapsed and threatened world financial stability.
ABN Amro estimates investment banks globally earn around $26 billion from hedge funds and their activities in markets.
