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对冲基金的发展为金融市场提供了流动性，减少了市场低效率的情况，同时也给金融机构额金融市场带来了很大的威胁。因此，在金融系统中了解对冲基金的作用和其对经济的影响是非常重要的。在过去的十年里，对冲基金的急速发展毫无疑问在国际金融领域成为了最引人关注的现象。凭借其资产规模，在投资者的基础上，涉足投资领域共性，对冲基金已成为国际主流的投资工具，其交易活动对全球资产价格和流动性的影响效果已经上升到了一个举足轻重的地位。从上个世纪中期以来，对冲基金从美国开始出现到目前为止取得了很大的发展。在2011年4月，全球对冲基金的数量已经超过9000，其管理资金规模也达到了202百亿美金。在世界主要的股票市场上，除了中国，对冲基金的交易量占总交易量的40%-50%，俨然已经对全球经济产生了显著影响力。
1.0 executive summary概况
The development of hedge fund provides liquidity for financial market reduces the low efficiency of market and also brings banking institutions and financial market about huge threat (Pastor and Stambaugh, 2003). Therefore, it is very important for us to know about the role of hedge fund in the financial system and their impact on the economy.
In the past 10 years, the rapid growth of hedge funds undoubtedly has become the most high-profile phenomenon in the international finance field. With its asset scale, investors’ basis, universalities involved in the investment field, hedge funds has become the international mainstream investment tools, its trading activities’ effects on global asset prices and the influence of liquidity has risen to a decisive position.
2.0 Introduction介绍
Since the middle of the last century hedge funds was birth in the United States, it has already got very strong development so far. By April 2011, the global number of hedge funds has reached more than 9000, the scale of management asset up to 2.02 trillion dollars. At the world's major stock markets except China, the trading volume accounts of hedge funds reached about 40% ~ 50% of total trading volume accounts, hedge funds have become a power which has a significant impact on the global economy.
As a broker, the bank directly provides leverage to hedge funds, which makes hedge funds directly exposing under its risk. If some unfavorable factors lead to the loss of lever parts and these losses do not get support of sufficient liquidity (Brunnermeier, 2009), it will lead to defaults which hedge funds to broker debt, thus will transfer the risk to banking institutions. The size of this kind of overflow sexual risk depends on the size of the hedge fund scale and also depends on relative importance of its position in the market.
3.0 Hedge funds and financial system对冲基金和金融系统
The channel of hedge funds influence the financial system has two kinds: one kind is through the prime brokers business; another is by trade relationship. Brokers provide service through hedge funds (McKinsey Global Institute, 2007), they can better understand part position of hedge funds related. But because a hedge fund may use several brokers, which also makes the broker (Hildebrand, 2007) can only obtain part of the position of hedge fund (Blundell-Wignall, 2007). Generally speaking, the brokerage business is very concentrated; the first three big brokers almost attain 60% of assets management share of hedge funds. In order to seize more market share, other brokers must provide service having many discounts, which means there are larger risk association between brokers and hedge funds (Morrison, 2005). At the same time, a lot of large financial institutions are the main transaction object of hedge funds, such as through the OTC and financial derivatives.
Hedge funds also participate in the secondary market through bank loans, such as high-yield bonds, convertible bonds and emerging market bonds, etc. and this means that banks and hedge funds faced a similar risk. The failure a large hedge fund of will lead to huge reaction of relevant banks and financial markets and cause system crisis (Aglietta and Rigot, 2008). The initiative attack of hedge funds on the financial market also can lead to the instability of the financial system and this kind of instability and will strengthen with the vicious cycle of different channel. For example, when hedge funds and bank proprietary business which have the similar position at the same time on a large scale are out of a market, it will cause market risk. Because hedge funds behavior’s centralization, relevance and overflow, it will further lead to financial system of systemic risk.
The rapid expansion scale of hedge funds makes the investment mistakes and has to clearance in the process of delivery. It will inevitably affect the interests of other investors, what’s more, large hedge funds’ a large number of borrowings from bank even more expanded the externality. Once the hedge fund bankruptcy, the interests of the depositors will undoubtedly damage. Even though most hedge funds business performance is good, the risk status moderate. But as long as there is a hedge fund with huge losses, its disastrous consequence is unimaginable (Greenspan, Alan，1998).
Hedge funds make the whole financial as an integration of market, bring the whole market about an advantageous side. It appears as a positive market participant, is good for expansion of OTC market development and ascension of liquidity and improves the distribution of risk. Because the diversification of hedge funds’ investment strategy and the low correlation among hedge fund investment style, it can provide attractive income at the procession of stock bonds market going up and the overall market risk is low compared with mutual funds.
4.0 Hedge funds’ impact on the economy 对冲基金对经济的影响
From the operating principle of hedge funds, it should be the stability of financial market rather than destroyer of financial stability, because hedge operation of hedge funds promotes the market to a balanced state of regression. However, in actual operation, hedge funds tend to diverge from its original definition. It manifests in the following two aspects:
First of all, although hedge funds conventional operation technique is hedge mechanism of the sale combination. But sometimes carry out unilateral operation instead of hedge. That is to say, hedge funds can do empty or do much without any corresponding hedge assets. When the hedge fund from the main evade risk mechanism evolved to the organization to manipulate the price of speculation, its nature changed, distorts the financial market price signal, misleads the flow of resources, results price fluctuation in financial market greatly, destroy the stability of the monetary system.
Secondly, more importantly, in order to profit, hedge funds use a large-scale of financial leverage. For example, in 1998 the United States LTCM’s (long-term capital management company) capital is 4.8 billion dollars but the management of the portfolio value reached $200 billion and having $1.2 million principal of financial derivatives. When influenced by Russia financial crisis, LTCM loss is as much as $4.3 billion. Their positions huge, almost financing to all the big Banks and it can not compare to the general state of the foreign exchange reserve (Mustier and Dubois, 2007). If forced to close or gets out of debts, it will lead to the huge bad debts to the relevant bank. Matured claim about trillions of dollars can’t cash, which will also cause the world financial market big fluctuation, and even cause financial systemic risk. It is out of such consideration, the New York fed had to intervened, coordinates ten big banks transferring more than $300 million, absorbing 90% shares of it. Greenspan decided to lower interest rates and to deal with LTCM financial impact caused by operation mistake.
5.0 The concept of indirect supervision mode间接管理模式的概念
The U.S. government's mainstream supervision idea is not advocated for hedge fund direct supervision or comparative strict supervision. But it should be carried out the principle of indirect supervision for hedge funds. This is because at the supervision authorities’ view, hedge-fund’s regulation mainly solves two problems: Firstly, business operation of hedge fund has already constituted a threat on the financial market stability. Secondly, hedge fund investors if need extra regulatory protection. According to PWG analysis, the collapse of large hedge funds and has nothing to do with the direct supervision (Shadab, 2008).
To protect investors is not the reason of implement direct supervision. Because it is different from mutual funds which open to general investors. Hedge funds are usually representative organizations and limited partnership organizations of high net investment of individuals. Only open to the qualified investors by legalization, investors range was limited. Thus hedge funds are more similar to private equity fund in many ways and do not have the nature of the public product. Therefore, direct control measures shall not apply to hedge funds which have the purpose to protect the mutual fund investors.
In short, hedge funds did not bring unique challenges to system risk management and the existing regulatory tools and monitoring program is enough to meet the needs of the investor protection (Larosiere and chair, 2009). Although hedge fund activities increase potential risks of financial market and investor base, it is necessary to strengthen the prevention of hedge fund system risk and pay attention to investor protection, but should maintain the current management structure. Because it works well and is beneficial to strengthen energy of capital market in the United States. Regulators make new laws or the approach of new rules which may unknowingly affect the market development steps.#p#分页标题#e#
6.0The frame structure of indirect supervision mode间接管理模式的框架结构
The United States supervision mode of hedge funds consists of two levels and three main lines. The first level is basic level, which the market participation main body(hedge funds creditors, counterparty and hedge fund investors of hedge funds) realize the control of opponent risk and the protection to investment rights though the implementation of market discipline. The second level is auxiliary level which realized risk prevention of hedge funds system and the purpose of investors’ moderate protection through the three main lines by the government financial supervision department.
The first line is that securities regulators through anti securities fraud, market entry procedures, investors' qualification restrictions, investors surveyed appeals and other direct supervision rules to protect investors. The second line is that securities and futures supervision department through the registered investment advisor or futures trading advisor’s regulatory supervision to supervise the behavior of involving hedge funds, slowly release large supervision object futures trading risk and reflect investor protection. The third line is the line to supervise system risk.
7.0 Policy Suggestions政策建议
Firstly, all intermediary should have more prudent risk management, evaluation and operation ability. Hedge fund development and financial market innovation are synchronous. Financial innovation accelerated the wide spread of the market risk and credit risk. Hedge funds create a more convenient condition for financial transactions. It helps major financial intermediary to spread risk because of lacking of liquidity and makes financial system more robustness.
Since LTCM met with the crisis, the main financial intermediaries’ risk management ability has been improved significantly. Large hedge funds’ risk management ability has also enhanced the preparation of new capital agreement and implementation also played an important role. In recent years, the main financial intermediary through the launch and packing, etc, makes their own risk gradually transferred to other agencies, which requires major financial intermediary counterparty has sound risk management, evaluation and operation ability and enough to undertake the credit risk and market risk, etc.
Secondly, regulators are more prudent supervision. Although in recent years the financial system has been improved, systemic risk has reduced, but there are still some potential factors which cause systemic risk. For example the development of financial innovation is conducive to disperse and dissolve the risk, but also can bring market about reverse excitation, causing greater risk; subprime mortgage crisis in 2008 is the result of derivatives’ excessive speculation. In addition, structured credit and other innovation product itself contains financial risks have considerable complexity, which cause the overall risk of financial institutions and financial system more complicated. Therefore, regulators need to make more prudent supervision about hedge funds.
8.0 Conclusion总结
In short, hedge funds play an important role in the financial system and have significant impact on the economy. The development of hedge fund provides liquidity for financial market reduces the low efficiency of market and also brings banking institutions and financial market about huge threat. In recently years, the development of hedge fund is very fast. Hedge fund has become the international mainstream investment tools, its trading activities’ effects on global asset prices and the influence of liquidity has risen to a decisive position.
However, although hedge fund plays an important role in the financial system and the economy, it also brings about many threats to the operation of economy, such as system risk of financial system. Therefore, measures should be taken to solve these problems. Government departments and banking institutions must pay attention to the development of hedge fund. Besides, government departments should attach importance to supervision to hedge fund and its operation.
9.0 Reference list参考文献
Aglietta, M and Rigot, S. (2008), “The regulation of hedge funds under the prism of the financial crisis”, University of Paris 10, Nanterre, Working Paper No 2008-20.
Blundell-Wignall, A (2007), “An Overview of Hedge Funds and Structured Products: Issues in Leverage and Risk”, Financial Market Trends, No 92, Vol. 2007/1, OECD.
Brunnermeier, M.K. (2009), “Deciphering the Liquidity and Credit Crunch 2007-2008”, Journal of Economic Perspectives, Vol.23, No.1.
Larosiere, J.,chair, (2009),” Report by the High-Level Group on Financial Supervision in the EU”, Brussels, 25th February.
McKinsey Global Institute (2007), The New Power Brokers: How Oil, Asia, Hedge Funds, and Private Equity are Shaping Global Capital Markets.
Mustier, J.P and Dubois (2007), “Risks and return on banking activities related to hedge funds”, Financial Stability Review, Banque de France, April.
House of Commons (2008), “Treasury Committee, Report on Financial Stability and Transparency”, 26th February, 2008.
Brunnermeier, M.K. and Pedersen, L.H (2009), “Market Liquidity, Funding Liquidity”, Review of Financial Studies, Vol.22, No 6.
Mustier, J.-P. , A. Dubois (2007), Risks and return of banking activities related to hedge funds, Banque de France, Financial Stability Review 10, April 2007, pp. 85-94.
Pastor, L. and R. Stambaugh (2003), Liquidity Risk and Expected Stock Returns, Journal of Political Economy 111, pp. 642-685.
Morrison, A. (2005), Credit derivatives, disintermediation and investment decisions. Journal of Business, 78, 621–647.
Hildebrand, Ph. (2007), Hedge funds and prime broker dealers: Steps towards a “best practice proposal”, Banque de France, Financial Stability Review 10, April 2007, pp.67-76.
Shadab, H.B (2008), “Testimony before the House Committee on Oversight and Government Reform”, November 13th.
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