conditions. in sweden, too, the market for hedge funds has grown rapidly. in this context, sweden is an advanced market with some 70 funds that manage close to 5 per cent of the total assets managed by funds in sweden. this makes sweden the most developed market in the nordic region. swedish hedge funds were also affected by market conditions during the summer, but recovered during the autumn. in sweden we do not have the same problems with transparency as in other parts of the world. in this country hedge funds are obliged to register. previously, the hedge funds reported all their holdings to finansinspektionen, the swedish financial supervisory authority, which then published the positions with a three - month time lag. but since hedge funds often have very complicated strategies this public information became far too detailed and difficult to process. neither was it particularly meaningful. instead they have now gone over to regularly reporting different measures that describe the risk in the hedge funds. this is a more transparent means of gaining information about individual hedge funds ’ risk. this information does not however show how large, direct or indirect, exposures the hedge funds have to the banks, for example. information about this must come from the banks themselves and the risk must also be managed by the banks. at present we know that these exposures in the swedish banks are extremely limited. 7 the uncertainty remains to summarise : on the whole the hedge funds have recovered rapidly from the august downturn which hit a number of different strategies. and it does not seem as though the hedge funds have played a decisive role in the most recent turmoil – not a negative role anyway. the hedge funds have functioned roughly as one could expect. in the riksbank ’ s view, nothing has occurred that speaks for further regulation. however it is important that good market discipline can be maintained and that hedge funds in other countries are as transparent as the swedish ones. we have not yet seen the end of the turmoil that characterised the financial markets during the autumn. unfortunately it cannot be ruled out that the crisis will be both more profound and longer than we previously believed. perhaps some hedge funds will be hit in this process. but overall i believe that the hedge funds can contribute to resolving the crisis, not aggravating it. the future will show if the hedge funds can meet these expectations. thank you! see also hedge funds and private equity firms – the exposure of banks and insurance companies, finansinspektionen, july 2007.

lively debate about further regulation of hedge funds. i shall return to this in a while, but first of all i shall discuss the turmoil we have experienced in the financial markets in the past six months. what has this entailed for the hedge funds and how have they been affected by developments? several hedge funds have been affected negatively by the recent turmoil as we know, the unrest in the financial markets has its origin in the us mortgage market, the subprime market. the problems in this relatively limited part of the us mortgage market spread to several financial markets at the end of last summer. a large share of the subprime loans had been re - packaged in various structured products and sold on to investors around the world. when subprime borrowers experienced problems in paying their credit, it became difficult to value products with subprime loans as underlying assets. at the end of the summer the credit rating institutes also began to downgrade credit instruments containing such loans. this resulted in the financial markets more or less losing confidence in anything that might contain subprime loans. this, in turn, fuelled price falls. 3 a common denominator for many of the investors, both hedge funds and others, who have experienced problems, is that they have had a high share of securities with subprime content, often in combination with high leverage. considerable attention, as we all know, has been focused on the us investment bank bear stearns ’ hedge funds, where the situation was such. when the financiers wanted to pull out, the funds were forced to sell their assets. the problem was that it was no longer possible to sell these assets, since liquidity in the market had disappeared. quite simply, there were no buyers at prices anywhere near those that were previously listed or calculated. the funds therefore collapsed with substantial losses. bear stearns ’ funds have received considerable attention, not merely because the losses were extensive, but also because they were among the first to experience problems. but there is also another category of hedge fund, which without having any actual exposure to subprime, was particularly affected by the turmoil. this was a type of fund that mainly relied on quantitative models for their investment decisions, so - called quant funds. many of for a more detailed description see the riksbank ’ s financial stability report 2007 : 2. these funds belonged to the group of hedge funds with a strategy that is normally called a long / short equity strategy. in principle,