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.
Most important reasons for a change in credit terms (net count of respondents)
Skip the ChartThe data are derived from responses to question 6 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 count represents the count of dealers citing each reason as the 'most important' cause for tightening the credit terms offered to hedge funds minus those citing the same reason as the most important reason for easing credit terms. A positive net count indicates the reason was a cause for an overall tightening of credit terms compared to the prior quarter, while a negative net count indicates it was a cause for easing over the same period. A zero net count signifies that no respondents cited the reason as the 'most important' or that an equal number cited it for both tightening and easing.
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Suggested CitationOffice of Financial Research, "Hedge Fund Monitor," refreshed monthly, https://www.financialresearch.gov/hedge-fund-monitor/ (accessed ).