High risk hedge funds do not pose a systemic risk to the Australian financial system, the corporate regulator says.
A survey of Australia's largest hedge funds by the Australian Securities and Investments Commission (ASIC) found they were responsible for only a small share - 3.1 per cent - of Australia's $2.1 trillion managed funds industry.
Hedge funds are viewed suspiciously by regulators, due to a track record of using wealthy investors' funds to disrupt financial systems chasing high returns with speculative investments, such as betting on assets failing.
The hedge funds surveyed were not highly leveraged - using borrowings - and appeared to have adequate liquidity to meet obligations, ASIC said.
The funds mainly came from Australian wholesale investors, rather than smaller retail investors.
"Their hedge fund investment relative to their total investments is minimal, which tends to reduce systemic impact of any problems in the sector," ASIC said.
Hedge fund redemptions exceeded applications in 2012, as more funds flowed out than in.
