investment weenie

Hedge Fund Chicken and Egg Problem

The correct question should not frame this as a chicken or egg problem, but rather an effort to understand the fulcrum in a simple machine. What is the appropriate leverage and how will this impact de-leveraging...the size of the asset being levered versus the capital weight applied requires the fulcrum to be adjusted. If we assuming today's risk appetite is unchanged from last year, we can approximate the leverage pivot given asset value and capital deployed. Since we know risk appetite is less, and we know asset values have deflated, we can back into an approximation and forecast redemption levels.