In doing so, it underscored that increasing consumer and business confidence could fuel risky bets and create or expand financial market vulnerabilities. The Fed’s suggestion that more data was needed on hedge fund debt followed an episode in March when problems at a large fund, Archegos Capital Management, spilled back to hurt banks. The fund had amassed big, leveraged stock bets that went bad and ended up costing banks it had done business with. “While broader market spillovers appeared limited, the episode highlights the potential for material distress” at financial companies that aren’t banks “to affect the broader financial system,” the Fed said in its report. It said hedge fund opacity had also raised questions during the meme stock episode: Some funds that were betting against the stocks in question took losses as chat board vigilantes poured into them.

Source: New York Times May 06, 2021 20:31 UTC