Leverage and Risk in Hedge Funds

Barth, Daniel; Hammond, Laurel; Monin, Phillip

doi:10.2139/ssrn.3544304

Cited by 3 publications

(3 citation statements)

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“…In some cases, hedge fund gross leverage may reach astronomical heights as layers of debt can build both on-and off-balance sheet through derivatives exposure. The invisible leverage implied in derivatives contracts is also referred to as 'synthetic leverage', 'embedded leverage', and 'instrument leverage' (Breuer, 2000;Ang et al, 2011;Barth et al, 2020;McGuire and Tsatsaronis, 2008).…”

Section: The Missing Data On Hedge Fund Liabilitiesmentioning

confidence: 99%

“…Likewise, a 2020 study authored by economists from the US Office of Financial Research (Barth et al, 2020) presents disaggregated statistics that draw on SEC data on both balancesheet and synthetic leverage over the 2013-2019 period and shows that the leverage of top 1 percent funds (which account for 72.6 percent of the industry's aggregate GNE in 2022, see table 2) is much higher than the leverage of all other funds, including those in the 95 th percentile (Barth et al, 2020, p.52). This is unsurprising as top 1 percent funds alone account for nearly three-quarters of aggregate GNE (see table 2).…”

Section: Institutionalisation and Polarisation In The Hedge Fund Sectormentioning

confidence: 99%

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The invisible leverage of the rich. Absentee debtors and their hedge funds

Sgambati

2024

Competition & Change

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The existing literature on finance, debt, and inequality depicts economic elites as a creditor class. According to a popular thesis, over the past four decades, the rich and ultra-rich households have experienced a saving glut (excess income), which they have invested in the debts of the poor and their governments. While it is undeniable that the rich have expanded their income share at the expenses of the poor, to refer to them as ‘creditors’ or ‘lenders’ is a misrepresentation of how they actually expand their wealth and income shares by financial means. For it conceals the fact that a great deal of their investments is leveraged, that is, carried out with borrowed money. This article shows that the debts generated for the sake of affluent households easily surpass those of all other households. However, these debts are not accounted for in statistics on household debt. This is because affluent households, particularly multi-millionaires and billionaires inside the top 1%, do not simply borrow from banks, like normal households do, but they are instead absentee debtors who borrow through corporate structures of which they are dominant shareholders and ultimate beneficiaries. To gain an insight into their invisible leverage, the article looks at how much hedge funds borrow and why their leverage matters.

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Section: The Missing Data On Hedge Fund Liabilitiesmentioning

confidence: 99%

Section: Institutionalisation and Polarisation In The Hedge Fund Sectormentioning

confidence: 99%

The invisible leverage of the rich. Absentee debtors and their hedge funds

Sgambati

2024

Competition & Change

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“…The derivatives long exposure reported in those forms is generally delta-adjusted, so it is effective (as opposed to notional) exposure.18 In the FoF, hedge funds are typically aggregated together with other household assets and liabilities. However, the aggregate balance sheet of hedge funds is available among supplemental materials (Tableb101f).19 Barth, Hammond and Monin (2020) use disaggregated SEC Form PF data to examine the cross-section of hedge-fund leverage. The measures they report imply an 𝑅 coefficient between 0.6 and 2.7, depending on the exact definition of leverage used.…”

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confidence: 99%

Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities

2023

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Who owes? Class struggle, inequality and the political economy of leverage in the twenty-first century

Sgambati

2022

Finance soc.

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The prevalent consensus in critical social sciences is that finance articulates the world economy as a global hierarchy of creditor-debtor relations that reproduce and further aggravate existing income and wealth inequalities. Class struggle is correspondingly understood as a conflict between elite creditors, who are members of the global top 1% of wealth holders, and mass debtors, who are burdened by growing costs of servicing public and private debts. This article offers an alternative understanding of how debt, inequality and class relate to one another. At its basis is the recognition that over the past four decades, finance has empowered upper class borrowers, including the top 1%, as it has magnified their capacity to generate capital gains and capture greater wealth and income shares via levered-up investments and other forms of positioning in financial and property markets. The article thus provides a political economy of leverage as power, showing how contemporary global finance has not given shape to a distributional conflict between creditors and debtors as two distinct classes, but instead has set debtors against debtors, and namely the greater borrowers against the lesser ones.

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Leverage and Risk in Hedge Funds

Cited by 3 publications

References 23 publications

The invisible leverage of the rich. Absentee debtors and their hedge funds

The invisible leverage of the rich. Absentee debtors and their hedge funds

Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities

Who owes? Class struggle, inequality and the political economy of leverage in the twenty-first century

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