Hedge Funds Ramped Up Leverage in Stocks Just Before Market Rout
- It adds to evidence of euphoria that sets stage for a pullback
- Morgan Stanley sees crowding risk elevated for hedge funds
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Individual investors weren’t the only ones falling in love with stocks right before they went south. Turns out the savviest of institutions were in equally high spirits.
Hedge funds, which use borrowed money to amplify returns, went risk-on in a major way this month. Net leverage, a measure of industry risk appetite that takes into account long versus short positions, rose by about 5 percentage points, one of the fastest expansions in years, according to data compiled by Morgan Stanley’s prime brokerage unit.