The recent Financial Stability Report shows that hedge funds have high leverage. Now, this is gross leverage, so there can be a significant amount of long positions offset by shorts, yet this high level can be an essential risk if market dispersion and correlation change. A mismatch between long and short risk can create significant exposure for hedge funds.
What is interesting is the large increase in balance-sheet leverage among the most significant hedge funds. These would be the multi-strat pods. Their leverage has exploded over the last two years, while the leverage of smaller hedge funds has remained relatively stable.
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