In a speech on safeguarding the resilience of non-bank finance, Central Bank of Ireland Deputy Governor Vasileios Madouros set out a shift in the Bank’s funds-sector work towards implementation of international and EU reforms and intensified surveillance of liquidity, leverage and interconnectedness risks. The Bank also published findings from two recent in-depth assessments covering liquidity management by Irish-domiciled open-ended funds and vulnerabilities in the Irish hedge fund sector, alongside a good-practices document on calibrating price-based liquidity management tools. On liquidity management tools (LMTs), the Bank found widespread availability but less consistent use. Around 85% of open-ended funds have at least one price-based LMT, with availability up by around 40% over the past half decade, but usage over 2022–2023 was well below availability levels, including only about half of high-yield bond funds using price-based LMTs at least once. The assessment also found limited incorporation of explicit market-impact estimates beyond bid-ask spreads, at around 15% of funds. On hedge funds, the Bank estimated around EUR 400bn of assets under management, roughly 4% of the global sector and more than half of Europe’s hedge fund sector, with diversity of strategies and exposures supporting resilience. Vulnerabilities were assessed as higher in certain strategies, notably Relative Value funds with weighted-average leverage of around 30–45 times and greater reliance on repo borrowing, and in credit hedge funds due to less liquid investments and stronger credit-market linkages; however, the Irish sector’s market footprint was described as modest, including less than 0.2% of the estimated stock of outstanding sovereign debt in core markets and a maximum footprint of around 2% across all asset classes. The Bank indicated it will use ongoing data collection on LMT availability and use and fund flows to monitor outcomes, with supervisory attention in 2026 focused on LMT use by bond funds, and it plans to deepen surveillance of hedge fund segments with the most material vulnerabilities while engaging internationally to assess system-wide implications. Separately, its discussion paper on distributed ledger technology and tokenisation in financial services invited written responses by 5 June 2026, with an intention to publish a feedback statement based on submissions.
Central Bank of Ireland 2026-04-09
Central Bank of Ireland finds 85% of open-ended funds have price-based liquidity tools but usage lags and relative value hedge funds run 30–45x leverage
The Central Bank of Ireland is shifting its funds-sector focus to implementing international and EU reforms and intensifying surveillance of liquidity, leverage and interconnectedness risks in non-bank finance, supported by new assessments of liquidity management in Irish-domiciled open-ended funds and vulnerabilities in the hedge fund sector. It found widespread but underused price-based liquidity tools in open-ended funds and elevated vulnerabilities in highly leveraged Relative Value and less liquid credit hedge funds, though with a modest market footprint. The Bank will use ongoing data collection to scrutinise liquidity tool use by bond funds in 2026, deepen surveillance of vulnerable hedge fund segments, and has sought industry feedback on distributed ledger technology and tokenisation.