Hedge fund advisers have improved disclosures and transparency about their operations since the failure of Long Term Capital Management in 1998, but controls creditors and brokers have implemented are inadequate to prevent hedge funds from taking excessive risk, GAO said. One problem GAO identified was the use by most large hedge funds of multiple prime brokers as service providers, which prevents centralization of data necessary to assess a hedge fund client's total leverage. These shortcomings can contribute to systemic risk because losses by hedge funds could cause unforeseen significant losses at key financial institutions and markets. - Bill McConnell
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