The “first formal analysis of hedge fund leverage” finds it to be “counter-cyclical” to that of banks
| Aug 16th, 2010 | Filed under: Academic Research, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Today's Post | By: Alpha Male |
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The classic hedge fund model is often said to resemble “picking up nickels in front of a steamroller.” To make the nickels add up to anything, you need to jump in front of that steam roller on a regular basis and pick up as many nickels as you can each time. In short, you need to leverage your time.
So it’s no surprise that “excessive leverage” is often invoked by hedge fund critics. Government mandated secrecy allowed rumours of excessive leverage to dog the industry over the past decade, and today many still accuse the industry of endangering financial markets through the cavalier use of borrowed money.
The most popular post on this website in 2009 sought to dispel that myth by aggregating a series of charts from different sources showing that leverage was not nearly the made-for-media story is was made out to be. Average bank leverage, it turned out was at least 10 times that of the average hedge fund.
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