https://www.bloomberg.com/news/arti...eals-high-leverage-as-firm-recruits-new-money https://www.bloomberg.com/news/arti...bluecrest-said-to-gain-54-in-blockbuster-year Both Bluecrest and Point72 were hedgefunds that converted to family offices (for different reasons). Both are running significant leverage. I get the sense Bluecrest converted specifically so they could use leverage. In the case of Point72, they used to run 3.5x leverage and now they are 8x levered. Not sure what this means: The cost of debt is so low it makes sense for them to borrow rather than to raise equity (in the form of investor capital where the costs are higher). Or the markets have so little opportunity that to get big returns they are increasing their leverage.
I think it really is a bit of everything, but, mostly, it's a matter of "why not". Both Mike Platt and Stevie probably feel that, if there's one thing that they're good at, it's deploying leverage (after all, that's what being a hedge fund is mostly about). Now that they don't have pesky investors/regulators breathing down their necks, why not go do what you do best and do it bigly? On a separate note, AFAIK, the return numbers normally reported for Bluecrest are of a different sort, so they have to be taken with a pinch of salt. Obviously, with P72, there's an open question about what happens this year, when they go back into the HF biz proper.
In the case of blue crest it sounds like they converted investor capital to borrowed capital. I thought it was interesting because my impression is that at the "Pod" firms, they would allocate say 200mm to a PM but it was rare that PM ever used a significant portion of that.
Bluecrest just started using leverage to the max permitted by their arrangements. Furthermore, I wouldn't be surprised if some of these arrangements were renegotiated in light of them becoming a family office, to give them more capacity. As to how risk gets allocated, it's really hard to generalize, since it's so very strategy-dependent.
I find most family offices are risk adverse and avoid certain types of leverage and risky investments. Steve Cohen is not typical of anyone in his risk allocations. He is not looking for 5% to 6% above t-bills after fees. That would not cover his overhead.
It would be interesting to see these leverage based on fixed income bets and equity bets. If they are levering up on fixed income side compared to their previous leverage then it may be non-factor.
How would a fund calculate leverage on a volatility strategy which is balance sheet intensive but not as risk intensive?
Depends on the asset class, I suppose... You can use working capital (e.g. total margin, haircut, etc), gross notional and/or MV, gross risk factor (e.g. vega or delta or whatevers), on top of VAR. You can also limit exposure based on max DD in stress tests. Then pick the "worst of" to enforce.