AIMA/CAIA: Made to Measure - Understanding the use of leverage in alternative investment funds

AIMA & CAIA Association

Leverage and risk are not two sides of the same coin. Increasing the leverage ratio of a fund might add to the risk being taken on. But in certain circumstances it reduces the level of risk. As data in this paper shows, investor drawdowns (losses) do not necessarily increase when fund leverage ratios increase. The same goes for performance − returns do not necessarily improve just because leverage levels rise.