Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Fed Says Dealers Made it Tough for Hedge Funds to Finance Trading

A Federal Reserve survey showed that “Wall Street dealers made it tougher for hedge funds to finance trading of securities and derivatives in the three months through November,” reports Bloomberg.

“Responses indicated a broad but moderate tightening of credit terms applicable to important classes of counterparties,especially hedge-fund clients… according to the quarterly survey of senior credit officers at 20 dealers covering the period of September to November.” Ben Bernanke

Respondents who reported tighter borrowing terms for hedge funds “most frequently pointed to a worsening in general market liquidity and functioning and to reduced willingness to take on risk and, to a lesser extent, adoption of more-stringent market conventions and deterioration in the strength of counterparties as the reasons.”

The Federal Reserve report also showed that “hedge funds’ use of financial leverage, considering the entire range of transactions with such clients, had decreased somewhat over the past three months.” Obviously, tighter borrowing terms will tend to lead to a decrease in the frequency that hedge funds use leverage, but there is a greater issue – without leverage, hedge funds can’t make the massive returns they have a history of making. By borrowing money, a hedge fund can take a larger position in a stock than would otherwise be possible. This way, a fund can make big profits on a small gain.

Given that there is already an issue with many hedge fund filings (not all), tougher credit terms may make the issue worse. A 2011 study by Cici, Kempf and Puetz found that hedge fund “valuations were marked below quarter-end closing prices and in bad times they were marked up. Investors gravitate toward funds whose performance is less volatile, and lower measured volatility also gives funds the green light to use more leverage.”

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!