Hedge Funds Pose Risks To Financial Stability, Fed Says

Hedge funds pose risks to financial stability says fed

MarketWatch just published a shilly article identifying AMC and GameStop as risks per the Fed’s Financial Stability Report.

However, this was a blatant lie.

I went through the FSR and found that the Feds recognize the risk hedge funds pose to the financial system due to limited visibility in hedge fund exposure.

This is important information indeed.

Franknez.com

Welcome to Franknez.com – the blog that protects retail investors against FUD media. Today we’re discussing the system risks hedge funds pose to our country.

Let’s get started!

Federal Financial Stability Report

Let’s get right down to the facts.

In the FSR, the fed describes the failure of the Archegos Capital Management and its losses through a number of large banks.

“The potential for material distress at hedge funds to affect broader financial conditions underscores the importance of more more granular, higher frequency disclosures.” via. FSR.

The Fed mentions that the Archegos incident serves as a reminder that available measures of hedge fund leverage may not be capturing important risks.

This report highlights the potential for nonbank financial institutions such as hedge funds and other leveraged investors to generate large losses in the financial system.

Hedge funds seem to be in deep waters even with the fed.

What Other Risks Are Mentioned In The FSR?

While MarketWatch was eager to point retail investors were a risk to financial stability per the fed, this is not true.

The fed states in their report that “the appetite for risk has increased broadly, as the meme stock episode demonstrated.”

This simply means they’ve recognized that more people are willing to bet on the upside potentials of these specific securities.

Other ‘risks’ mentioned are those of the corporate bonds market where there’s also an elevated appetite for the securities.

The Federal Financial Stability Report doesn’t mention that ‘meme stocks’ like GameStop and AMC pose risks to financial stability but rather more people are willing to take risks.

And it’s for this reason the feds are closely monitoring hedge funds and retail investors to “ensure the financial system is resilient.”

The report, which you can find here, tackles the issues surrounding overleveraged positions and losses from banks, not retail investors.

Regulators Are Looking At Hedge Funds

The SEC is currently fighting Citadel Securities over a D-Limit order that would prevent the hedge fund from using high frequency trading.

Gary Gensler also said the rise in retail trading and engagement is “positive” but that it’s prompted the SEC to take a real close look at dark pools to promote market transparency, via Forbes.

Gensler also pointed out that dark pools have been increasingly common during the rise in retail investing.

So while hedge fund affiliated media tries to sway retail investors, all eyes are on the risks hedge funds pose within our markets.

The Citadel vs SEC court hearing has gone private at this point an no updates have been released to the public yet.

You can read the full summary on the very first hearing here.

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1 Comment

  1. Todd C.

    When court goes private? Reminds me of big oil going into private meetings with State of Alaska. It is depressing to know that privacy protects conspiracy and is Anti-American to my gut feelings. May freedom ring!

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