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Federal Reserve Hedge Funds

Federal Reserve Hedge Funds

Federal Reserve Says Banks Eased Credit to Hedge Funds

The Federal Reserve said that banks are easing credit to hedge funds and private equity firms. In the three months ended in August, more banks said that credit had "eased somewhat" than "tightened somehwhat" as hedge funds and private equity firms increased demands for concessions when negotiating price terms for deals.
More banks said credit terms “eased somewhat” than said terms “tightened somewhat” in the three months ended in August, the Fed said today. Hedge funds and other investors tried harder to negotiate favorable price terms for deals, with 50 percent of dealers saying that clients “increased somewhat” or “increased considerably” their demands for concessions.

Increased competition from rivals and improvements in the financial strength of counterparties were the main reason that terms were loosened, according to the survey released by the Fed in Washington. Five of six respondents cited each factor as “very important” or “somewhat important” in their easing of terms.

The Fed started the survey in part because the financial crisis “highlighted that a significant volume of credit intermediation has moved outside of the traditional banking sector,” the central bank said in a report posted earlier this year on its website. Source

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