Turning to other risks in global financial markets, a significant factor behind the loss of market liquidity in the second half of 2007 was the rapid and substantial de-leveraging imposed on the hedge fund sector as prime brokers tightened margin requirements and terms on their lending for the funding of leveraged positions.
Nevertheless, the hedge fund sector proved remarkably and unexpectedly resilient in the first phases of the turbulence. An important reason for this was that exposures of the sector to the sub-prime and related securities markets appear to have been more limited than initially feared.