Largest Hedge Funds Control Only 1% of Market?

Do Hedge Funds Only Control Small Portion of Market?
It is a common perception that major hedge funds control much if not most of the equity and commodity markets. This is not an unreasonable belief considering hedge funds in the US control over $1 trillion in assets. Citadel Investment Group, one of the US' largest funds, is said to account for almost 3% of US trading volume.

Well, on Tuesday Feb. 23, the U.K. Financial Services Authority found that 50 of the U.K.'s largest hedge funds control less than 1% of the European stock market. The 50 firms in that survey manage about $300 billion USD in assets. They also concluded that no individual hedge fund posed any systemic risk.

According to the WSJ, the study looked at all assets of these funds including their long and short positions as well as derivatives.

There are some flaws with the above conclusions though. Conspicuously absent is a report on hedge funds' total share of market activity as opposed to simply their holdings. It is also unclear from the WSJ article how the derivative values were calculated and whether short positions were netted against long positions or added.

Still it is interesting that based on UK regulators' statements, they see even large hedge funds as posing little risk to the system.

Hedge Fund Manager Fined and Banned for Mismarking Positions

UK Hedge Fund Manager Fined and Banned by Financial Services Authority for Mismarking Positions
The U.K.'s financial regulator Wednesday said it had banned and fined hedge fund manager, Loic Montserret of BlueCrest Capital Management, for mismarking trading positions as he tried to hide losses and keep his job. Monteserret is the first individual to be both banned and fined for mismarking trade positions by the Financial Services Authority. At one point, his mismarking resulted in the fund being overvalued by $8.6 million.

Montserret was banned from the securities industry for 15 years and fined GBP35,000.

Monteserret, manager of the BlueCrest Multi Strategy Credit Fund, was responsible for managing about $60 million of BlueCrest Capital Management's $12 billion in assets under management and is one of the UK's largest hedge funds.

Loic Albert Antoine Montserrat, now a former hedge fund manager manager at BlueCrest Capital Management Ltd., is the first individual to be both banned and fined for mismarking trade positions by the Financial Services Authority.