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.
Hedge funds’ efforts to negotiate more favorable credit terms (net percent of respondents reporting a change)
Skip the ChartThe data are derived from responses to question 7 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 that hedge funds increased — either 'considerably' or 'somewhat' — the intensity of their efforts to negotiate better credit terms minus those reporting a decrease. A positive net percent indicates overall greater efforts by hedge funds to negotiate better credit terms compared to the prior quarter, while a negative net percent indicates an overall reduction in efforts over the same period.
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Suggested CitationOffice of Financial Research, "Hedge Fund Monitor," refreshed monthly and quarterly, https://www.financialresearch.gov/hedge-fund-monitor/ (accessed ).