Hedge Fund leverage latest stats
New industry data for Q1 2025 is out and what you may have missed
The OFR Hedge Fund Monitor is now updated for the filings across the hedge fund industry up to the end of Q1 2025. Leverage and borrowing continue to rise across the industry and that trend has of course continued through to the end of Q2 but we now have publicly available hard data. The key takeaway is that this is not just a pod shop story.
Click on the link to the website above - lots of fun stats there - but I will summarize a few of them below. We also have lots of new subscribers to this Substack in recent weeks, so I have briefly re-capped the pieces I have written on hedge funds over the last 9 months later in the piece with links to them.
Rising leverage across the hedge fund industry
Overall hedge fund industry borrowing hit record levels by the end of the first quarter of 2025. Gross borrowing of $6,225 billion was an 11% increase over the quarter and a 26% increase year on year. The key driver of the quarterly growth in terms of types of borrowing was repo financing which grew 14% over the quarter following a contraction in the prior quarter. Both prime brokerage and repo borrowing are at record levels.
For all the talk of rising leverage levels in the multi-strategy universe the fastest growing of the major segments in terms of borrowing over the quarter were macro and relative value hedge funds. Over the last year, the greatest increase has been from equity long/short hedge funds (the story is only partly owing to the benefit of rising AUM with higher stock markets), and macro hedge funds.
Another way to look at this is gross leverage ratios, and the chart below illustrates this.
Multi-strategy hedge funds have seen a significant increase in leverage ratios over recent years driven by the growth of pod shops expanding in areas like the US Treasury basis trade. But their gross leverage had already hit 11.8x at the end of Q3 2024. Relative value hedge funds tend to be the most leveraged in the industry given their focus on tiny margins between fixed-income instruments and here leverage has been fairly constant the last year and coming down in prior years.
Where gross leverage has risen more sharply recently are macro and equity long/short hedge funds. Macro is particularly interesting as here net leverage has also increased ahead of the other hedge fund strategies. The stellar returns of many of the largest and most leveraged macro hedge funds are a complete contrast to the dire returns of quant trend-followers.
Financing hedge funds
There has been an increased concentration of the hedge fund revenue pie in terms of trading and financing with fewer sell-side investment banks in recent years. The first quarter was no exception with 13% growth (vs Dec 2024) in the credit provided by the largest 9 bank prime brokers. They provided around two-thirds of all financing for the hedge fund industry illustrating the concentration risk of the leveraged business model. (The biggest US prime brokers are increasingly focusing their valuable balance sheet and resources on the bigger multi-strategy and pod shop firms with new funds that don’t spin out of these firms unlike to get much service.)
At the same time, the OFR data also shows that hedge fund giants are reducing their creditor concentration. The average shares of total borrowing from their three largest creditors derived from SEC Form PF for the top 10 hedge funds declined from 65% to 49% over the last two years. For the top 11-50 hedge funds this share has fallen from 80% in 2013 to 70% two years ago and nearing 60% today. For those hedge funds outside the top 50, this is around 95% and hasn’t changed at any point in the last 12 years, illustrating how difficult it is for even mid-size hedge funds to diversify funding sources. A similar trend can be when looking at the breadth of counterparties that hedge funds have.
The chart below using the latest OFR numbers from the end of Q1 2025 illustrates this increased diversification. Citadel likes to emphasize its breadth of financing counterparties but we are seeing a similar trend across all at scale leveraged hedge funds.
Hedge Fund deep-dives
Citadel is from Mars and Millennium is from Venus - Are pod shops all the same? looked at the better returns and higher volatility of Citadel relative to Millennium, the latters’ great scale not just in terms of AUM but significantly larger headcount, how Citadel is more centralized, and how it has built the commodities powerhouse.
The French Connection - CFM, Squarepoint and QRT the new hedge fund quant kings focuses on some of the fastest-growing quant funds in the world that are all run by STEM graduates from France’s most elite universities.
The rise of Arini tells the story of the fastest-growing new hedge fund in Europe.
Hamza Lemssouguer has built Arini into a $9-10bn leading credit platform in a mere 3 years with stellar returns and an increasingly diversified product set across credit. It is one of the rare examples of a new hedge fund launch outside the big pod shop world, and their alumni.The blurring lines between HFTs and hedge funds discussed the increased convergence of business models and competition between high-frequency proprietary trading firms and low-frequency hedge funds as existing profit pools are squeezed. I highlight five main ways these two traditionally distinct financial market participants are increasingly overlapping in their business models: the frequency of trading, converging trading strategies, size and duration of capital bases, headcount and infrastructure, and asset class expansion.
Is Millennium worth $14bn? looked at peer group multiples from other hedge fund transactions, how an 8x PE is more in line with the bottom end of where Goldman Sachs trades so very different from private markets asset gatherers, and how the ability to scale alpha, drive stickiness of AUM, the low volatility of Millennium’s performance fees and its ability to maintain financing for its leverage are key to long-term valuation.
The trend is your friend - A short history of trend-following hedge funds. This is a fascinating industry with so much history from the Chicago pit traders to the London quant's. The hedge fund industry (pod shops, multi-strategy quants, and macro investors) bounced back and has seen a strong first-half investment performance. But the Soc Gen CTA Indexes are still down 10% this year. The piece was also discussed on the “Top Traders Unplugged” podcast by two top industry pros in the quant space.
Jane Street is different - Why Jane Streets lives on and on and on and on and on and on looks at the ETF market maker which makes most of its revenues from other products and is today a market leader across cash equities, corporate bonds, and equity options as well. Jane Street’s revenues in Q1 2025 of $7.2bn were 3x what they were 2 years and it is now bigger than all Wall Street trading desks apart from JPM and Goldman Sachs.
The best trader in the world last week looked at Mike Platt who has made a $18bn fortune from his pivot from hedge funds to family office. At one point BlueCrest was one of the largest hedge funds in the world managing $37bn. Over the last decade, Platt has generated annualized returns net of costs of 50% as a family office. His team of traders is now as large as it was when BlueCrest the hedge fund was at its peak, illustrating the significant use of leverage on top of a much smaller equity base.
To redeem or not to redeem - Hedge funds look for longer lockup’s goes through data on how all the major pod shops and other hedge funds are increasing the stickiness of their assets. Top firms that used to take a year to fully redeem from can nowadays take up to 5 years to get out of and there is an increased amount of internal capital from fund founders and employees.
The Warren Buffett of Europe is a piece on TCI’s Chris Hohn: his differences and similarities with the Oracle of Omaha including his returns and the evolution of his investment strategy from activist to concentrated bets on quality franchises with moats.
Steve Cohen - a decade on Before all other big pod shop names there was one name that dominated the industry for decades with 30% returns per annum. Here I recall Cohen’s battle with Preet Bharara a decade on and how he is back today, with lower returns but still thriving.
Secrets of the Tiger reviews a recent memoir by the former assistant to Chase Coleman III of Tiger Global, her revelations, and what we learn about Coleman the personality.
Ray Dalio and Bridgewater is a review of a recent book on how Dalio built Bridgewater from a newsletter into a sophisticated macro engine, a marketing machine that was an early client of Chinese and other Asian sovereign investors, and his radical transparency of “Principles”.
New pods on the block explored the world of pod shop multi-manager platforms beyond Citadel and Millennium including the comeback kid Balyasny, Hudson Bay Capital’s Gerber statistic, the emergence of Verition, and other new pod shops.