Leverage in Investment Funds

MFA agrees that policy officials and regulators need tools to assess the potential for systemic risk. MFA believes that systemic risk at alternative investment firms is very unlikely for several factors, including that they have no deposits, no access to central bank liquidity, no public bailouts, and generally do not engage in bank-like activities. Leverage in the hedge fund sector should therefore be analyzed within a framework that considers other risk factors and risk mitigants, and regulators should not equate investment risk to systemic risk. MFA strongly supports IOSCO’s recommendation that any leverage metrics should be adjusted for duration, credit, and netting and, most importantly, that leverage should be examined on an asset-class-by-asset-class basis and never aggregated across assets.