Leverage / Debt Financing
This is the use of borrowed money or securities that are used by an investment manager to increase the potential return of a fund. Hedge fund leverage can be looked at in two ways, gross leverage and accounting leverage. The gross leverage is the same as a fund’s gross exposure and reflects the ratio of the total invested capital on both the long and short sides of the portfolio divided by the fund’s net asset value. The accounting leverage reflects the invested capital on the long side divided by the fund’s net asset value.