In its annual statistical report on alternative investment funds, Esma says the main risks faced by the sector relate to a mismatch between the potential liquidity of the assets, and the redemption timeframe offered to investors. The report named real estate funds and funds of funds as being particularly vulnerable to this risk.

As for leverage risk, some hedge funds were seen to be potentially excessively exposed, especially for strategies reliant upon derivatives.

The AIF sector grew by 15% to €6.8trn of net assets in 2019 from €5.9trn in 2018, Esma said.