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Hedge funds reduce leverage, according to HFR
May 17, 2011 by Charles Gubert
Leverage among hedge funds has declined over the last 12 months, according to data from the Chicago-based Hedge Fund Research.
The average standard leverage across all hedge fund strategies decreased from 1.27 to 1.10 times investment capital. Average margin to equity fell from 17.13 to 16.98 year over year.
It was also revealed that one third of all funds do not use leverage – this was an increase of 4% since 2010. Approximately half of all funds use leverage of between one and two times their investment capital.
Larger hedge funds are more likely to use leverage. Some 23% of funds with more than $1 billion in assets under management use leverage of between two and five times their investment capital.
While funds that employ leverage generally experience greater volatility, the performance difference between leveraged and non-leveraged funds since 2005 is not that statistically significant, said Hedge Fund Research.
In March 2011, the annual Deutsche Bank investor survey highlighted many investors remain wary of leverage. However, it added: “Investors’ low appetite for leverage is not matched by managers – 47% of investors say the leverage implemented by their underlying managers has increased over the last year, a net increase of 33% overall.”
