Hedge Funds Leverage
Report Shows Hedge Funds Are Using Less Leverage
Hedge funds have been employing less leverage over the last twelve months. According to a recent report, the average standard leverage for all hedge fund strategies fell from 1.27 to 1.10 times investment capital and average margin to equity also fell from 17.13% to 16.98% year on year.
HFR says average standard leverage decreased across all hedge fund strategies from 1.27 to 1.10 times investment capital, while average margin to equity also declined, falling from 17.13% to 16.98% year on year. Moreover, approximately one-third of all funds used no leverage—an increase of 4% over 2010, while over half of all funds use leverage of between one and two times their investment capital.
Larger funds tend to employ more leverage, thus HFR’s report shows 23% of funds with AUM over $1 billion use leverage of between two and five times their investment capital.
The study also points out that although funds employing leverage usually experience greater volatility, the difference in performance between leveraged and non-leveraged funds since 2005 is not statistically significant. Source
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