The International Monetary Fund urged policymakers to improve scrutiny of hedge funds after estimating their gross assets at $13 trillion in early 2026. That compares with about $4 trillion in 2013, while gross notional exposures, including derivatives, were around $40 trillion. The findings were released on 6 October in an analytical chapter of the IMF’s forthcoming Global Financial Stability Report. The full report is scheduled for 13 October.
The IMF said hedge funds now perform larger roles in market liquidity, price discovery and risk transfer. It estimated that they held about 9% of US Treasuries in 2025, up from 4% in 2022. Their growth has been driven substantially by leverage, including synthetic exposure through derivatives. Reuters separately reported the Fund’s warning that opacity makes aggregate risks harder for regulators to measure.
LEVERAGE CAN AMPLIFY MARKET STRESS
The analysis found that shares most widely held by hedge funds were 10 percentage points more volatile than the least crowded shares. Their peak-to-trough losses were four percentage points deeper, with the effects intensifying when funds faced simultaneous investor withdrawals. Higher volatility or tighter financing can generate margin calls and force funds to unwind positions. Such selling can turn liquidity providers into amplifiers of market stress.
The IMF identified prime brokers as an important transmission channel because major dealer banks provide funds with financing and trading services. Losses at leveraged clients can weigh on those banks and reduce their capacity to lend during periods of strain. The Fund also found that stress can cross borders when funds withdraw from less liquid markets. Markets with a larger hedge fund presence tended to suffer sharper declines when global risk sentiment deteriorated.
SUPERVISORS FACE DATA AND POLICY GAPS
The IMF called for better reporting and information sharing on leverage, derivatives, prime-broker relationships and cross-border activity. It said broad deleveraging risks could justify market-wide measures such as minimum margins and haircuts, while concentrated exposures may require risk-based leverage limits or capital add-ons. Supervisors should also test how funds and counterparties respond to common shocks. Prime brokers, meanwhile, should maintain strong counterparty risk controls over highly leveraged clients.
The recommendations do not constitute binding global rules, and their implementation will depend on national regulators and international co-ordination. The IMF is due to publish a separate analytical chapter on tokenised financial assets on 8 October. Its full financial-stability report on 13 October will provide the next scheduled assessment of how hedge fund vulnerabilities fit within wider global market risks.