Hedge funds have cut portfolio leverage this year in a conservative turn that has sucked borrowed money from global markets, adding selling pressure to stocks and bonds.
Net leverage, a measure of industry risk appetite that takes into account long versus short positions, has fallen almost 20 percentage points to a year low of 66%, according to data earlier this month from Goldman Sachs Group Inc.’s prime brokerage. Separate figures from Morgan Stanley’s prime brokerage show a similar decline to 41% among US long-short equity hedge funds, a level reached on only a small number of occasions over the past decade.
