Hedge funds are becoming increasingly important players in global financial markets, but vulnerabilities linked to leverage, fragile funding and crowded positions could amplify market stress, the International Monetary Fund warned Tuesday.

The IMF released the “Hedge Funds and Financial Stability” chapter of its Global Financial Stability Report, ahead of the full report’s Oct. 13. Hedge funds’ gross assets rose from $4 trillion in 2013 to around $13 trillion by early 2026, according to the report.

Their expanding market presence can support liquidity and efficiency during normal conditions, but can also intensify price disruptions and liquidity pressures during periods of financial stress. The report identified leverage, fragile funding structures and crowded trades, where multiple funds hold similar positions, as key vulnerabilities behind the risks.

It called for closing data gaps and strengthening risk monitoring, alongside targeted measures to address risks arising from crowded positions and simultaneous reductions in leverage.

IMF officials said in an accompanying blog post that hedge funds’ growing footprint was particularly evident in government bond markets, with funds holding about 9% of US Treasury securities in 2025. Unlike most other financial intermediaries, hedge funds face relatively few restrictions on investing and borrowing, said officials. That flexibility allows them to invest in illiquid assets, make extensive use of leverage and adjust positions rapidly. The characteristics can support liquidity, price discovery and risk sharing in normal conditions. When markets deteriorate, however, they can also transmit and amplify shocks across the financial system, officials warned.