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 data 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.