All About Alpha recently spotted a Hedge Fund Implosion Predictor buried away in the last Financial Stability Review from the ECB. Might come in handy for Hectors Sants and colleagues in E14, now that Alistair Darling wants to give the FSA special powers to deal with big hedge fund problems.
Basically, the Predictor relies on “empirical panel logit analysis” — applied to the Lipper TASS hedgie database — to arrive at a set of variables that might point to the likely liquidation of a hedge fund – something, the ECB notes, that might also be useful in comparing hedge funds with other business entities.
The detailed table of variables is available here, along with a full explanatory note. But the following summary table gives the gist of the ECB’s thinking:
Related links:
Financial Stability Review, June – ECB
White Paper on financial reform – HM Treasury