SEC Says Largest U.S. Hedge Funds’ Debt Tops $1 Trillion

SEC Says Largest U.S. Hedge Funds’ Debt Tops $1 Trillion

The nation’s largest hedge funds had $1.47 trillion in net assets and more than $1 trillion in borrowings as of the fourth quarter, according to the first report compiled on confidential data they provided to the U.S. Securities and Exchange Commission.

The SEC’s Division of Investment Management issued the report to Congress last week using figures from money managers who run private funds with gross assets of at least $150 million, including borrowed capital, and the agency broke out figures for the biggest firms. Congress ordered the SEC to collect information from private-equity and hedge-fund managers under a provision of the 2010 Dodd-Frank Act designed to help regulators monitor risk in the financial system.The SEC is required to submit an annual report to Congress on how the agency has used data collected through the Form PF from private funds. Investment advisers that meet the $150 million threshold must file the form once a year, and those with more than $1.5 billion in gross hedge-fund assets must file quarterly. For each separate fund with more than $500 million in net assets, they must provide more detailed data on its leverage, risk profile, exposures and liquidity.

Money-management firms with at least $5 billion of hedge-fund assets began making the filings last July. The SEC provided data from their fourth-quarter filings in an appendix to its report.

The managers oversaw 823 hedge funds that met the $500 million threshold for more-detailed reporting, according to the SEC. That included 569 funds with a single primary strategy and 252 that employed multiple strategies. Two funds didn’t report.

Liquidity Periods

The funds reported having $1.47 trillion in net assets and $1.06 trillion in aggregate debt during the fourth quarter. Debt includes secured and unsecured borrowings for each fund and excludes “other significant methods of incurring leverage,” such as derivatives, according to the report.

The report also provided details on the liquidity of the assets held by the funds. Twenty-seven percent of their $1.47 trillion in net assets could be divested within a day, according to the SEC. Fifty-three percent of the net assets could be liquidated in a week or less, the large managers said, and 71 percent would take no more than a month to sell. Fifteen percent of assets would take more than six months to liquidate.

The agency also detailed how quickly the managers allowed their investors to cash out. About 7 percent of the $1.47 trillion could be withdrawn by investors in a day, and 24 percent could be taken out within a month. Investors could redeem about 59 percent of the total capital within 180 days, the report said. About 26 percent of capital would take more than a year to get back.

Florence Harmon, an SEC spokeswoman, declined to comment on the contents of the report.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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