Hedge Fund Liquidity Management

Hedge Fund Liquidity Management: Insights for Systemic Risk Oversight

SSRN Electronic Journal ◽

10.2139/ssrn.3734596 ◽

2020 ◽

Author(s):

George O. Aragon ◽

A. Tolga Ergun ◽

Giulio Girardi

Keyword(s):

Systemic Risk ◽

Hedge Fund ◽

Liquidity Management ◽

Risk Oversight

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Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis

Finance and Economics Discussion Series ◽

10.17016/feds.2021.038 ◽

2021 ◽

Vol 2021 (037) ◽

pp. 1-68

Author(s):

Mathias S. Kruttli ◽

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Phillip J. Monin ◽

Lubomir Petrasek ◽

Sumudu W. Watugala ◽

...

Keyword(s):

Hedge Funds ◽

Hedge Fund ◽

Cash Holdings ◽

Liquidity Management ◽

Regulatory Constraints ◽

Relative Value ◽

Share Restrictions ◽

Arbitrage Trading ◽

Hedge Fund Returns

Hedge fund gross U.S. Treasury (UST) exposures doubled from 2018 to February 2020 to $2.4 trillion, primarily driven by relative value arbitrage trading and supported by corresponding increases in repo borrowing. In March 2020, amid unprecedented UST market turmoil, the average UST trading hedge fund had a return of -7% and reduced its UST exposure by close to 20%, despite relatively unchanged bilateral repo volumes and haircuts. Analyzing hedge fund-creditor borrowing data, we find the large, more regulated dealers provided disproportionately more funding during the crisis than other creditors. Overall, the step back in hedge fund UST activity was primarily driven by fund-specific liquidity management rather than dealer regulatory constraints. Hedge funds exited the turmoil with 20% higher cash holdings and smaller, more liquid portfolios, despite low contemporaneous outflows. This precautionary flight to cash was more pronounced among funds exposed to greater redemption risk through shorter share restrictions. Hedge funds predominantly trading the cash-futures basis faced greater margin pressure and reduced UST exposures and repo borrowing the most. After the market turmoil subsided following Fed intervention, hedge fund returns recovered quickly, but UST exposures did not revert to pre-shock levels over the subsequent months.

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Developing an Islamic Central Bank Deposit Facility for Liquidity Management

Journal of Islamic Banking and Finance ◽

10.15640/jibf.v4n2a1 ◽

2016 ◽

Vol 4 (2) ◽

Author(s):

Suleiman Sani Dalhatu

Keyword(s):

Central Bank ◽

Liquidity Management

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Issues on Interbank Commodity Murabaha (CM) for Liquidity Management in Malaysia

Journal of Emerging Economies and Islamic Research ◽

10.24191/jeeir.v8i2.8621 ◽

2020 ◽

Vol 8 (2) ◽

pp. 9

Author(s):

Mohamad Zabidi Bin Ahmad ◽

Rosylin Mohd. Yusof ◽

Ahmad Rizal Mazlan

Keyword(s):

Risk Mitigation ◽

Banking System ◽

Islamic Banks ◽

Liquidity Management ◽

Standard Guideline ◽

Growth Area ◽

Islamic Financial Institutions ◽

Enhance Efficiency ◽

Analyze Structure ◽

Operational Issues

Purpose: The objective of this research is to highlight issues and review the Interbank Commodity Murabahah (CM) practice as a tool of liquidity requirement from both the Shariah and industry’s operational perspectives. Accordingly, this study seeks to analyze structure and mechanism of CM as instrument to meet the liquidity need of the Islamic financial institutions and provides an opportunity for investments. In doing so, the paper seeks to review issues related to Shariah and operations in Islamic banking. Design/methodology/approach: By conducting interview with Treasurers, Shariah Scholars and funding dealers of Islamic banks in Malaysia, the study evaluates reassessment on CM practices and operational issues in relation risk and compliance. The study focuses on Islamic Treasury Division of Islamic banks in Malaysia. Findings: The findings of the study suggest that the two most significant issues in Islamic liquidity management of Islamic banks in Malaysia are i) resembling interest ii) nature of tradability iii) structure of CM iv) the timing the transaction to be completed and v) the real brokerage cost involved in adopting the CM transactions. Research limitations/implications: The research proposes a risk mitigation and enhanced Shariah compliance framework such as strait through processing (STP) and commodity broker’s standard guideline for Islamic banks to adopt CM practices. Practical implications: This study provides direction and guidance to the Islamic Commercial Banks, Commodity Brokers and regulator (BNM) involved in the banking system to reflect upon the importance to understand the issues and limitation of CM. By highlighting the importance of efficiency in terms of time and cost saving together with Shariah issues, Islamic banks can design policies to enhance efficiency in order to either decide to maintain the adoption of CMP or to consider the proposed alternative. Social implications:Understanding the Shariah compliance and operational issues will enhance the integrity of Islamic banks which is consistent with Key Economic Growth Area of making Malaysia as International Islamic Financial Hub 2.0.

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