The New York Federal Reserve said that Hedge funds may now pose the biggest risk of a crisis since 1998.

According to a paper written by Tobias Adrian, capital markets economist at the central bank, "Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998."

"The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions." Reuters article here.