IMF Calls for Closer Hedge Fund Oversight as Assets Surge

The International Monetary Fund called for closer monitoring of hedge fund leverage after the sector’s assets more than tripled to about $13 trillion in early 2026 from roughly $4 trillion in 2013. The fund warned that borrowing and derivatives could increase market disruptions during periods of financial stress.

Hedge funds have expanded their role in trading, market liquidity and the transfer of risk between financial institutions, according to an IMF analysis for its forthcoming Global Financial Stability Report. Much of the growth has involved leverage, including synthetic leverage created through derivatives.

Leveraged positions can help funds provide liquidity and support market efficiency in normal conditions. They can also increase losses and force funds to reduce positions quickly when markets weaken, potentially adding to price swings.

Hedge funds have become more active in sovereign debt markets, especially US Treasuries. Their share of the Treasury market has risen to about 9%, from an estimated 4% in 2022. The IMF noted that their participation can support liquidity and price discovery, while large risk-taking can contribute to abrupt market dislocations during periods of stress.

Regulators have limited visibility into hedge fund positions and exposures. The IMF described the industry as opaque and noted that gaps in available data make it harder to assess risks at individual funds and their links with banks and other financial institutions.

The organization called for better data collection and risk monitoring to help policymakers identify vulnerabilities related to hedge fund leverage and connections across the financial system. The findings are part of a chapter in the IMF’s Global Financial Stability Report, scheduled for publication on October 13.