Hedge Funds With 2,000% Leverage Catch EU Watchdog’s Eye
- Big exposure to mortgage bonds poses risk to market: ESMA
- Funds are buyers in rising markets, sellers during downturn
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European regulators are closely following a group of hedge funds with exposure to mortgage bonds and average gross leverage in excess of 2,000%, a position so large it risks impacting markets.
The funds predominantly are buyers in rising markets and sellers during a downturn, according to a report Tuesday by the European Securities and Markets Authority about the risk posed by leveraged alternative investment funds. It’s an approach to trading that tends to compound market moves and can be an added source of instability.