Source: Central Bank of Ireland
09 April 2026 Press Release
New research finds Irish hedge fund sector unlikely to pose systemic risk on its own, while highlighting limited use of liquidity management tools despite widespread availability
The Central Bank of Ireland is shifting its focus towards effective implementation and enhanced surveillance of the non-bank financial sector, Deputy Governor Vasileios Madouros said today, as the Bank published new research on hedge funds and liquidity management tools.
Speaking at an Irish Funds event [LINK to speech], Deputy Governor Madouros outlined the findings of two in-depth assessments recently concluded by the Central Bank: one examining liquidity management by open-ended funds, and another evaluating financial vulnerabilities in the Irish hedge fund sector.
“As the composition of the financial sector itself is evolving, our approach – as a risk manager for the system as a whole – also needs to adapt,” Deputy Governor Madouros said. “Our focus at the Central Bank is now shifting towards effective implementation and enhanced surveillance.”
New Research on Hedge Fund Sector
Published today, the Financial Stability Risk Assessment of Irish Hedge Funds [LINK to Signed Article] found that the Irish hedge fund sector, which manages approximately €400 billion in assets and accounts for around 6% of the global hedge fund sector, is unlikely to pose systemic risks on its own, given its relatively limited market footprint in core global markets.
“The sector is large, but diverse. And that diversity supports resilience,” Deputy Governor Madouros said. “The market footprint of the Irish hedge fund sector is modest, limiting systemic impacts.”
However, the analysis reveals vulnerabilities that could generate financial stability risks if correlated with hedge funds that follow similar strategies in other jurisdictions.
“Relative Value funds are around 30-45 times levered, on average,” Deputy Governor Madouros said. “In times of stress, historical correlations might break down, leading to losses – which, amid high leverage – can contribute to the emergence of fire sale dynamics.”
“Our assessment is that the sector – on its own – is unlikely to pose systemic vulnerabilities,” he continued. “Our findings emphasise the need for enhanced financial stability monitoring of vulnerable cohorts, supported by supervisory engagement as well as cross-border cooperation.”
Novel Survey Reveals Gap Between Availability and Use of Liquidity Management Tools
The Central Bank also published research on the ‘Availability and use of Liquidity Management Tools in Irish-domiciled Investment Funds’.
The research found that price-based liquidity management tools (P-LMTs) are widely available in Irish-domiciled investment funds, with 84% of funds having at least one such tool. Anti-dilution levies (ADLs) are the most commonly available P-LMT, followed by redemption fees and swing pricing.
“Around 85% of open-ended funds have at least one price-based LMT. This is a significant increase over the past decade,” Deputy Governor Madouros said. “And that is a positive outcome. It means that asset managers are better equipped to mitigate the effects of liquidity mismatches.”
However, the survey highlights that while P-LMT availability is relatively high, the use of these tools lags availability significantly, with around one-third of funds using P-LMTs at least once over the 2022-2023 survey period.
Deputy Governor Madouros said “This is an area where we want to continue to see a shift in outcomes: towards greater use, and greater consistency of use, of price-based LMTs.”
“To support the use of these tools, we have today published a document outlining best practices in the determination of market impact. The use of LMTs, specifically by bond funds, will be an area of supervisory focus this year.”
Strengthening Resilience
Deputy Governor Madouros emphasised that strengthening the financial stability lens in the oversight of the non-bank sector remains a strategic priority.
“The goal is collective resilience. Not for its own sake, but as a foundation that enables the financial system to weather shocks, serve the real economy, and seize the opportunities ahead,” he said.
The Deputy Governor noted that while there are significant opportunities for Ireland’s funds sector – which manages more than €5.5 trillion in assets – including from the deepening and integration of European capital markets, these opportunities must be accompanied by robust resilience frameworks.
“For the benefits of increased capital markets financing to be realised, and sustained, this source of financial intermediation needs to be robust enough to withstand adverse shocks,” Deputy Governor Madouros said.
ENDS