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Working Paper
Investor Concentration, Flows, and Cash Holdings : Evidence from Hedge Funds
We show that when only a few investors own a substantial portion of a hedge fund's net asset value, flow volatility increases because investors' exogenous, idiosyncratic liquidity shocks are not diversified away. Using confidential regulatory filings, we confirm that high investor concentration hedge funds experience more volatile flows. These hedge funds hold more cash and liquid assets, which help absorb large, unexpected outflows. Such funds have to pay a liquidity premium and generate lower risk-adjusted returns. Investor concentration does not affect flow-performance sensitivity. These ...
Working Paper
Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis
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 ...
Working Paper
Reaching for Duration and Leverage in the Treasury Market
We show substantial variation in mutual funds' use of Treasury futures, both over time and across funds. This variation from mutual funds drives much of the time series variation in aggregate Treasury futures open interest, including over 60% of the recent rise in Treasury futures positions. We provide evidence these Treasury futures positions are largely attributable to mutual funds “reaching for duration†in order to track the duration of a benchmark index with high cash Treasury exposure. Specifically, we show mutual funds use futures to fill the gap between their portfolio and ...
Working Paper
Credit Supply and Hedge Fund Performance: Evidence from Prime Broker Surveys
Constraints on the supply of credit by prime brokers affect hedge funds' leverage and performance. Using dealer surveys and hedge fund regulatory filings, we identify individual funds' credit supply from the availability of credit under agreements currently in place between a hedge fund and its prime brokers. We find that hedge funds connected to prime brokers that make more credit available to their hedge fund clients increase their borrowing and generate higher returns and alphas. These effects are more pronounced among hedge funds that rely on a small number of prime brokers, and those ...
Working Paper
Hidden Risk
Since 2013, large U.S. hedge fund advisers have been required to report risk exposures in their regulatory filings. Using these data, we first establish that managers’ perceptions of risk contain useful information that is not embedded in fund returns. Investor flows do not respond to this information when managers perceive higher risk than what their past returns would indicate, suggesting managers strategically communicate their risk assessments with investors. During market downturns, investors withdraw capital from funds whose managers perceive higher risk, suggesting they find the ...
Discussion Paper
Decomposing Hedge Funds' U.S. Treasury Exposures
Between 2023 and September 2025, large hedge funds' gross U.S. Treasury exposures doubled to $4.0 trillion, comprising $2.4 trillion in long exposure and $1.6 trillion in short exposure. This growth outpaced that of the broader Treasury market, with hedge funds' Treasury securities holdings increasing from about 4.5 percent to about 8.5 percent of total outstanding Treasuries.
Discussion Paper
Sizing hedge funds' Treasury market activities and holdings
Hedge funds play an increasingly important role in U.S. Treasury (UST) cash and futures markets, a role that has been widely discussed following the March 2020 U.S. Treasury sell-off. In this note, we analyze hedge funds' holdings of UST securities and their UST market activities in normal times and in times of financial market stress using regulatory data from the SEC Form PF.
Discussion Paper
Non-bank financial institutions and the slope of the yield curve
In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities.
Discussion Paper
Hedge Fund Treasury Exposures, Repo, and Margining
Hedge funds have become among the most active participants in U.S. Treasury (UST) markets over the past decade. As a result, the financial stability vulnerabilities associated with their leveraged Treasury market exposures, which are facilitated by low or zero haircuts on their Treasury repo borrowing, have become more prominent.
Discussion Paper
Quantifying Treasury Cash-Futures Basis Trades
The Treasury cash-futures basis trade exploits the difference in prices between a Treasury security and a related Treasury futures contract – the so-called cash-futures basis – by purchasing the asset that is relatively undervalued and selling the other in a bet that the prices will converge. Basis traders support Treasury market functioning by keeping the prices of Treasury futures near their fair value relative to Treasury securities and by serving as an important source of demand for Treasury securities, including during the 2017-2019 period of quantitative tightening when basis ...