Hedge funds are using near-record levels of leverage to amplify returns as AI-driven market enthusiasm pushes equities higher — but regulators are increasingly worried about what happens when the cycle turns.
🔍 Key Highlights
- Gross leverage globally: 285% (Goldman Sachs) — near an all-time high.
- JPMorgan: Leverage at 297.9%, the highest in 5 years.
- Quant funds: ~645% leverage.
- Multi-strategy funds: ~444% leverage.
- Hedge funds report borrowing at 10x leverage, close to historic peaks.
- S&P 500: +16.1% YTD
- Nasdaq 100: +21.6% YTD
⚠️ Why It Matters
Leverage magnifies gains — and losses.
Regulators including the Federal Reserve and Bank for International Settlements are scrutinizing the trend amid fears of a crowded, leveraged unwind:
“If large multi-strategy funds unwind at the same time, everyone runs for the doors with few buyers,”
— Michael Oliver Weinberg, Hedge Fund Investor
Hedge funds’ rising leverage has been fueled by:
- AI-driven bullish sentiment
- Growing fund size and complexity
- Banks offering more aggressive leverage terms
- The multi-strategy “pod shop” model dominating trading volumes
Multi-strategy funds now control one-third of hedge fund equity gross exposure — up from $91B (2010) to $428B (2025).
🟢 Bulls Say: “Risk Managed”
Despite the concerns, many insiders argue today’s hedge funds are better equipped with advanced risk controls:
“Clients have gotten better at monitoring and hedging risks,”
— John Schlegel, JPMorgan
Morgan Stanley notes that global hedge funds returned >11% YTD, suggesting leverage has been rewarding — so far.