Australia’s hedge funds are small in number, don’t have a lot of assets under management and don’t pose significant a risk to the financial system.
According to a survey and detailed analysis by the corporate watchdog ASIC, the hedge funds have only a small part of Australia’s $2.407 trillion managed funds.
Single-manager hedge funds at $83.7 billion manage 3.5% of all Australian managed fund assets. Funds of hedge funds represent just 0.5%, or about $12.2 billion.
There are 473 local hedge funds with about half of them managing just $50 million in investments.
Hedge funds are characterised by their use of complex strategies, which may include derivatives, short selling, high-frequency trading and the search for absolute returns
In Australia, hedge fund returns have fallen recently.
In the year to September 2014, the average annual return was 4.2%, lower than the previous year when funds reported 14.4%. The return has been negative twice, in 2008 and 2011, since 2004.
The number of single manager hedge funds and funds of hedge funds:
Assets under management by Australian hedge funds:
“This survey adds to a survey conducted in 2012 which found that there was not any strong evidence that hedge funds pose significant systemic risk,” ASIC says.
The assets of Australian single-manager hedge funds peaked at $86 billion in July 2014 before falling to around $83.7 billion at September 30 last year. Assets under management of hedge funds globally had a similar trend over the same period, rising to $US2.5 trillion.
By asset class, listed equities are the Australian fund managers’ greatest exposures with net investments valued at more than $26.3 billion.
The second largest asset class was cash at $5.7 billion.