Esma reveals funds’ reliance on repo funding

European alternative investment funds (AIF) are heavily dependent on reverse repo to fund their business activities, exposing the industry to liquidity transformation and rollover risk, a report by the European Securities and Markets Authority (Esma) shows.

Almost 60% of total borrowings among these funds are through reverse repo, while a further 18% is funding secured by other means. Only 10% of funding is made up of unsecured borrowings.

Hedge funds, a subset of AIF, rely strongly on short-