Hedge Fund Monitor
Leverage
Leverage measures the extent to which hedge funds borrow to enhance returns. While leverage provides benefits, it also comes with risk. Leveraged hedge funds are dependent on creditors’ willingness and ability to continue to lend. Further, declines in collateral and asset values can lead to margin calls that require hedge funds to tap their liquid assets and may leave them less able to meet short-term funding needs. As a result, elevated leverage combined with a reliance on short-term funding warrant closer inspection. Rapid growth in leverage also warrants additional analysis. Examples of leverage metrics include total borrowing, the ratio of gross assets-to-net assets, and the over-collateralization rate.
Use and availability of leverage offered to hedge funds (net percent of respondents reporting a change)
Skip the ChartThe data are derived from responses to questions 8 and 9 of the Federal Reserve Board’s quarterly Senior Credit Officer Opinion Survey on Dealer Financing Terms (SCOOS). See additional definitions and methodology on the FRB SCOOS Data Sets page of the Hedge Fund Monitor.
The net percent represents the fraction of dealers reporting an increase — either 'considerably' or 'somewhat' — in the use and availability of leverage offered to hedge funds minus those reporting a decrease. A positive net percent indicates an overall increase in the use and availability of leverage compared to the prior quarter, while a negative net percent indicates an overall decrease over the same period.
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Suggested CitationOffice of Financial Research, "Hedge Fund Monitor," refreshed monthly, https://www.financialresearch.gov/hedge-fund-monitor/ (accessed ).