Unusual Spike in Equity-Funding Costs Squeezes Smart-Money Crowd

An unusual rise in funding costs tied to hundreds of billions of dollars’ worth of equity investments is squeezing some hedge funds and money managers, while presenting cash-rich market players with an opportunity to rake in profits.

So-called financing spreads on S&P 500 Index futures — a cost embedded in the price of derivatives that allow investors to gain exposure to stocks without buying shares outright — have climbed markedly during the recent bull market. They spiked to a record late last year and have remained above historical levels even during the latest downturn.