(HedgeCo.Net). The hedge fund industry at large is embracing a surge in leverage, spurred by increased investor interest, AI-driven equity rallies, and a strong macroeconomic backdrop. According to recent data from prime brokers, gross leverage — the ratio of long and short positions to capital — is hovering close to record levels. Some quantitative funds now reportedly run leverage above 600%. Finimize+1
The leverage boom is most pronounced among quant-driven and multi-strategy funds, which are using borrowed capital to boost returns on equity trades and debt-backed strategies. Firms are gambling that risk controls will hold even if crowded positions need to be unwound. Finimize+1
But the trend has raised eyebrows among regulators and market watchers. Large-scale bond trades and leveraged positions — especially in government debt and other fixed-income instruments — have drawn “increased regulatory scrutiny,” as some experts warn that hedge funds are behaving more like “shadow banks.” Bloomberg+2Bloomberg+2
Still, 2025 has been a strong year overall for hedge funds. According to a leading hedge-fund research provider, global hedge fund assets under management recently hit an all-time high — roughly US$5 trillion — as funds delivered solid returns and institutional investors increased their allocations to alternatives. GCM Grosvenor+1
For investors viewing hedge funds as a source of diversification — especially given elevated valuations in public equities and bonds — that growth may reinforce the appeal of alternatives in a volatile market environment. But the rising leverage and concentration risk underscore why many are watching closely.