Abstract
This paper explores how affiliation to financial conglomerates relates to hedge funds’ funding and risk taking. We find that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding than other hedge funds. This may explain our finding that FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds during financial turmoil. In good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk. Thus, FCAHFs perform a stabilizing function for the financial system, even though they do not generate higher returns for their investors.