IMF warns hedge funds' rapid growth and opacity pose financial stability risks
The International Monetary Fund said hedge fund assets have more than tripled to about US$13 trillion since 2013, warning their use of leverage and opacity can amplify market stress. It urged policymakers to close data gaps and boost risk monitoring.
The International Monetary Fund (IMF) has warned that hedge funds have more than tripled in size over the past decade and now play increasingly critical roles in markets, but their use of leverage and overall opacity can inject risks into the financial system.
The findings were published on Tuesday as the IMF released a chapter of its Global Financial Stability Report, which will be published in full on 13 October. According to the IMF, assets at hedge funds now stand at roughly US$13 trillion in early 2026, up significantly from just US$4 trillion in 2013.
The IMF said hedge funds are playing an increasingly prominent role in trading, liquidity and risk transfers. Their growth has primarily come through leverage, including synthetic leverage through derivatives. The funds have also grown their footprint significantly in sovereign bond markets, particularly US Treasuries, where they now account for 9 per cent of the market, compared to just 4 per cent in 2022.
While greater hedge fund presence can boost market efficiency, the IMF warned they can also amplify stress when markets deteriorate, particularly due to their use of leverage and fewer constraints on risk. The fund added that hedge funds remain 'inherently opaque', making it difficult to accurately gauge their risks and exposures.
The IMF called on policymakers to close data gaps and boost risk monitoring of the sector for potential vulnerabilities.