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This page provides additional information about data in the Board of Governors' statistical release on the Financial Accounts of the United States (Z.1). Most of the information is of a technical nature and represents answers to questions that may be of interest to a range of analysts and researchers. The page will be updated as such questions arise.

Documentation for the data in the Z.1 release is available on the About page on the Board's website.

Q: How do hedge fund assets of U.S. households show up on the household balance sheet in the Financial Accounts?

Posted: 02/26/2014

The answer depends on whether the hedge fund is onshore (domestic) or offshore (foreign). The following answer is also predicated on the assumption that all transactions are carried out through U.S. brokers.

Onshore: If the hedge fund is domestic (located in the U.S.) then it is easiest to think of them as being consolidated on the household balance sheet (like nonprofits). That is, the household balance sheet will pick up the portfolio holdings of hedge funds in bonds, stocks and any other financial instruments held by the hedge fund, but those holdings cannot be distinguished from direct household holdings of those financial instruments.

Offshore: If the hedge fund is located offshore (like in the Cayman Islands), then the hedge fund itself is part of the rest of the world sector. That is, purchases of U.S. stocks and bonds by an offshore hedge fund would show up in our estimate of net purchases of U.S. stocks and bonds by the rest of the world (thereby reducing U.S. households' direct holdings of those assets). These data on portfolio holdings are collected for the balance of payments statistics by surveying transactions of U.S. brokers/dealers.

If a U.S. household purchases a share of an offshore hedge fund, then it should show up in the data as an issuance of equity by the rest of the world, and therefore, by the residual calculation, it flows through as a purchase of equity by the household sector. This is clearly not ideal; we would much rather have a sector "hedge funds", which--like mutual funds--holds financial assets and issues hedge fund shares that are then held by the household sector and other institutional sectors that are reportedly participating in the market. However, including foreign hedge funds in equity holdings is probably better than missing them altogether.

Caveats/Concerns: Because the data collection process relies on brokers, the financial accounts do not include transactions in offshore hedge funds that do not involve brokers. For example, if a high net worth household bypasses a broker and buys a hedge fund share directly from the offshore hedge fund, then we would presumably not see the issuance of the hedge fund share in equity issuance by the rest of the world (and therefore, the purchase would not be on the household balance sheet). However, if that same hedge fund used a broker to buy U.S. assets, those assets would still be in the rest of the world sector, thereby reducing the assets held on the household balance sheet.

Similarly, any domestic hedge funds that are purchased by foreigners would show up in net purchases of U.S. equity by the rest of the world. However, because equity issuance measured in the U.S. does not include hedge funds, these purchases would distort downward U.S. households' direct equity holdings.

In addition, the level of foreign equity (ROW liability) is calculated based on a perpetual inventory calculation which moves the level forward with price changes based on a foreign equity index (which should not include hedge funds) as well as the flow of equity (which should include the hedge fund issuance by the rest of the world).

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Q: How is the Securities Data Corporation (SDC) bond data used to calculate series FA103163003.Q in the Flow of Funds data set? Which categories of the SDC bond data do you focus on, and what are you using as a filter?

Posted: 03/07/2013

For the Flow of Funds data, we use SDC to track bonds of nonfinancial U.S. firms issued in U.S. and foreign markets. A firm is a U.S. firm if issuing subsidiary's domicile is the United States. We include both convertible and non-convertible debt issues but exclude medium-term notes (MTNs), Certificates of Deposit, Bank Notes, and government and agency bonds. MTN net issuance is tracked using a separate data source.

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Q: I have been looking at the Flow of Funds report Table F.212 - Net Issues and have some questions how the SDC Bond database is used.

Posted: 03/07/2013; Revised: 04/05/2013

The SDC Bond data from CM is used only to calculate 103163003 (corporate sector) issuance.

  1. Do you filter the SDC database on U.S.-owned corporates targeting U.S. markets, or do you filter on all (no matter if they are primarily owned by another country) corporate targeting U.S. markets?
    1. We filter the SDC database on U.S.-owned corporates targeting U.S. and foreign markets, with the domicile determined by the issuing subsidiary's domicile.
  2. Do you use the SDC database for Financial Companies?
    1. No, the financial sectors bond issuance series are not from the SDC data.1
  3. What sectors in SDC do you classify as 'Financial' (if you use SDC) and 'Non-Financial'?
    1. We use the Standard Industrial Classification (SIC) code of the issuer (not the parent) to distinguish between financial and non-financial firms. (http://www.osha.gov/pls/imis/sic_manual.html)
  4. What instruments do you consider to be asset-backed securities (ABS)?
    1. We only use the SDC bond data from Capital Markets to calculate 103163003 (corporate sector) issuance, so since this is nonfinancial data, it does not include ABS.1
  5. How are the maturity dates handled when using SDC?
    1. We do not filter out any issues based on time to maturity.
  6. How is Depository Trust and Clearing Corporation (DTCC) used
    1. DTCC is used for MTN net issuance data.

1. The answers to questions 2 and 4 originally suggested that the Flow of Funds Accounts excluded financial bonds. The text has been updated to say that the Flow of Funds Accounts do contain financial bonds, but the SDC bond data from Capital Markets is used only for the "Nonfinancial corporate business" line of table 212, which only includes nonfinancial bonds.

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Current release | Screen reader | PDF (560 KB) | Data Download Program (DDP) | Preliminary Z.1

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