The Swedish Central Bank on Hedge Funds

Lars Nyberg, of the Riksbank (Central Bank of Sweden) recently gave a speech on hedge funds for the CFA society of Sweden. The layout of the speech is relatively traditionally, beginning with the history of hedge funds (a la Jones), but later continuous into the LTCM and Amaranth stories where he compares the market impact and differences between them. Correctly, he makes the comment, that banks, in the normal case is much more leveraged than hedge funds. Banks falls under his mandate, it is much more important to focus on that kind of systematic risk, rather than focusing on the individual risk certain hedge funds may have. In aggregate, at least the Swedish ones are much much smaller than the exposure that the banks carry. The conclusion is actually excellent, where he, contrary from many other regulators, wants to improve the monitoring and regulations for banks rather than for hedge funds. Neither are hedge funds a threat to the economy as a whole. This spells well for the Swedish markets.