As hedge funds expand their influence in global markets, the International Monetary Fund (IMF) warned that this growth could create new vulnerabilities for financial stability.
In the chapter titled “Hedge Funds and Financial Stability,” prepared for the IMF’s Global Financial Stability Report due to be published on October 13, the IMF said hedge funds’ gross assets had risen from $4 trillion in 2013 to approximately $13 trillion at the beginning of 2026.
Market pressures could intensify during periods of stress
Hedge funds’ greater presence in markets can support liquidity and market efficiency under normal conditions. The IMF said that when financial stress emerges, price dislocations and liquidity pressures could become more pronounced.
High leverage, fragile funding structures and many funds holding the same positions were listed among the factors that could increase these risks. Investors exiting funds during the same period could also intensify pressure on markets.
The IMF said hedge funds can invest and borrow with fewer restrictions than many other financial vehicles. This flexibility allows funds to invest in illiquid assets, use high leverage and change their positions rapidly.
IMF calls for stronger oversight to monitor risks
The IMF recommended closing data gaps and strengthening supervisory activities to improve monitoring of financial stability risks. It said targeted measures were needed to address risks arising from concentrated trades and funds reducing leverage at the same time.
IMF officials also pointed to hedge funds’ position in government bond markets. The funds held approximately 9% of US Treasury securities in 2025, according to the IMF.
These characteristics of hedge funds can support liquidity, price formation and risk distribution when market conditions remain normal. However, when conditions deteriorate, the same mechanisms can make it easier for shocks to spread and intensify across the financial system.
