Hedge funds held about $13 trillion in gross assets in early 2026, more than three times their 2013 level, according to an International Monetary Fund study that warns similar positions and borrowed money can intensify market stress.
In ordinary trading, hedge funds can add liquidity by buying assets others want to sell. During a shock, funds facing losses or withdrawals may reduce similar positions together, adding pressure to prices.
The IMF’s October Global Financial Stability Report chapter examines how fund holdings, investor withdrawals and borrowing interact. Gross assets include assets financed with borrowed funds; they are not the same as investors’ net capital.
Why similar positions matter
A hedge fund is a private investment vehicle that can use a wide range of strategies, including borrowing, derivatives and short selling. A crowded trade occurs when many investors hold similar positions or depend on the same strategy.
When several funds try to sell the same asset at once, finding buyers can become harder. Price declines may prompt lenders to demand more collateral or investors to withdraw, creating pressure for additional sales.
The IMF found that stocks most exposed to crowded hedge fund positions had about 10 percentage points higher volatility and four percentage points deeper peak-to-trough falls than the least-exposed stocks during the stress periods analyzed. These are comparisons within its sample, not forecasts of future losses.
The chapter also found larger falls for equities exposed to more leveraged funds or correlated investor withdrawals. The effects became stronger when borrowing and crowded positions occurred together.
Borrowing can magnify both sides
Leverage lets a fund control more assets than its investors’ capital alone would buy. It can increase returns when trades work, but losses can also be magnified. Some exposure comes through derivatives, contracts whose value depends on another asset, rather than direct borrowing.
The IMF estimates hedge funds’ gross notional exposure, including off-balance-sheet derivatives, rose from $13 trillion in 2013 to more than $40 trillion in early 2026. Notional exposure is a measure of the underlying amounts referenced by contracts, not the same as a fund’s cash investment or potential loss.
Large dealer banks provide financing and services to hedge funds through prime brokerage. Their relationships create a channel through which fund losses can affect other financial institutions. The IMF notes that incomplete information on derivatives, borrowing and counterparties makes the risks harder to monitor.
Benefits in calmer markets
Hedge funds are not inherently destabilizing. The IMF says they can contribute to price discovery, risk sharing and trading liquidity in normal conditions. Their strategies and financing arrangements differ, and the study found that larger funds’ trading patterns were not identical to those of smaller funds.
The fund recommends better data, stronger counterparty risk management and targeted measures where vulnerabilities are concentrated. Its broader stability report also identifies rising bond yields and cyber disruption as separate risks. None of the scenarios is a prediction that a particular fund or market will fail.
For investors, the question is not just whether a portfolio owns a risky asset. It is also who else owns it, how those positions are financed and whether funding remains available when many holders want to exit.
