–Fewer Hedge Funds Seeking Better Terms in Past Three Months

By Denny Gulino

WASHINGTON (MNI) – While most-favored hedge funds and trading REITs
got somewhat better terms in the last three months, overall bank lending
terms have remained “generally stable” since the beginning of the year,
the Federal Reserve reported Monday.

About a fifth of the 22 respondents indicated somewhat of an
increase in the posting of collateral other than cash and U.S. Treasury
securities, the survey suggested. But any changes in routine credit
provision were only at the margins with important categories “basically
unchanged.”

“Only about one-fourth of dealers, a significantly smaller fraction
than in the March survey, noted an increase in the intensity of efforts
by hedge funds to negotiate more-favorable price and nonprice terms over
the past three months,” the Fed report said.

A slightly larger fraction than in the previous survey, about a
quarter, “suggested that the use of financial leverage by hedge funds
had decreased somewhat over the past three months.”

The Fed said a “vast majority” of dealers noted that “the
availability of additional financial leverage under agreements currently
in place with hedge funds had remained basically unchanged.”

Answering one-time questions that accompanied the survey, the
senior lending officrs said nearly a fifth of the dealers indicated “an
increase in appetite” to take on credit and duration risk over the past
year among mutual funds, pension plans, endowments and insurance
companies.

About a third of the bank respondents indicated that derivatives
clearing had increased over the past year, but still new client
over-the-counter derivatives trades cleared through derivatives prime
brokerage arrangements was still 10% or less.

Responding to another question, about a third of the banks surveyed
indicated an increase in the volume of financing provided to clients
through bilateral repos but only for non-agency residential mortgage
backed securities collateral

“Of note,” the report said, about one-third of respondents, on net,
indicated an increase in the volume of financing provided to clients
through bilaterial repos using one particular type of collateral,
residential mortgage backed securities.

The days’ Senior Credit Officer Opinion Survey on Dealer Financing
Terms, with its 22 respondents, is considerably smaller in scope that
the Fed’s other survey of lending terms, the Senior Loan Officer Opinion
Survey.

** MNI Washington Bureau: 202-371-2121 **

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