Ratings Agency Says Hedge Funds in Debt Markets Posing "Unheard-Of Risks"

6 de junio de 2007

<body><div id="article"><tr><td height="23" valign="middle" width="184"></td><td valign="middle" width="185"></td></tr><h1>Ratings Agency Says Hedge Funds in Debt Markets Posing "Unheard-Of Risks"</h1><p>June 6, 2007 (LPAC)--As the influence of hedge funds on key segments of the credit markets continues to grow at a dramatic pace, transforming the "swap" markets which supposed insure debt against default by the use of derivatives contracts, Fitch Rating warns of lurking, large liquidity risks. Germany's <em>Finanznachrichten</em> newswire reported Fitch's warning today.</p><p>Debt or credit-based hedge fund assets are reported to have reached over $300 billion in 2005, a six-fold increase from five years ago according to the IMF. Based on research published by Fitch today, this number excludes the multiplier effect of leverage. Therefore, that $300 billion of assets equates to $1.5 trillion-$1.8 trillion deployed into the credit markets by the hedge funds, at typical leverage levels of five or six dollars borrowed for every dollar of the hedge funds' assets risked, says Roger Merritt, managing director in Fitch's Credit Policy Group. This effective leverage is what amplifies the impact of hedge funds on credit markets.</p><p>The rating agency says that the growing role of hedge funds in the credit markets represents a true paradigm change. Hedge funds now account for nearly 60% of the trading volumes in the $30 trillion collateralized-debt securities market, and provide significant capital flows to all areas of the cash credit markets. In a market downturn, the potential for a forced unwind of hedge funds' credit assets can not be discounted, which in turn could lead to correlations that are different than historical expectations. Even a temporary dislocation in the credit markets could lead to a rash of defaults, it warns.</p></div></body>