Hedge funds lift debt levels in bid to cash in on equity rally

Michael Bow
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HEDGE funds are loading up on record levels of debt to try and make money off the New Year rally in stock markets, according to industry figures leaked yesterday.

Data from Morgan Stanley, seen by Bloomberg, shows gross leverage at US hedge funds – which measures money borrowed by funds versus money given to them by investors – was 153 per cent for the first week in January, compared to 143 per cent a year ago.

This was its highest recorded level since 2004 and is 10 percentage points higher than the average leverage level of 143 per cent recorded since its 2004 peak, according to the data.

Hedge funds typically borrow money to leverage up their holdings in stocks, increasing the level of returns. Recent figures shows the practice is on the rise.

Data from the New York Stock Exchange reveals debt levels in margin accounts, which allow investors to borrow money to buy stocks, hit $327bn (£203bn) in November, its highest level since early 2008. The S&P hit a five year high last week.