Oct 26, 2026 · 19 min · 8 segments
How is the role of hedge funds evolving? In this episode of Making Sense, John Schlegel, head of the Global Data Assets and Alpha Group for Prime Financial Services, sits down with Kumar Panja, head…
John SchlegelHost
Kumar PanjaGuest
I think one of the interesting things that you just brought up in terms of will they be as much of a protector? There is kind of an open question of if they're growing so much, do they become the market? Often this is one of the arguments against some of the large companies and the concentration risks in the U.S.
equity market is at what point do the companies be so large that they can't really grow and outperform the wider market because they are the market, right? I don't think we're there yet on the hedge fund side.
When you look at something like a measure of leverage in the hedge fund universe, this has certainly been a focus by many different folks within the industry, outside of the industry, regulators, etc.
Leverage levels and the amount of borrowing is objectively higher and has been trending higher over time.
And by this, I mean, if you think about how much the market has grown, it's grown significantly in the last five, 10 years, whether it's the performance of a lot of markets or the overall market cap or the turnover.
I mean, one of the things in the equity market that's happened is you have this influx of retail investors.
And so the thing is, when you have... higher asset levels, and more turnover, well, if you are a hedge fund that likes to make long and short bets and trade around things, there's more to do, right? And so we're only seeing the total assets on a levered basis kind of keep up in line with those market metrics rather than exceed them.
I think it's one of these things where as long as the markets hold up, Really, there's not necessarily this big disconnect where we've overshot in terms of the hedge fund leverage.
So that'll be something to watch, though, over the next few years and could depend on do we continue to see this AI-led growth and wider market kind of performance and economic growth continue? Or is there something that really causes that to slow down or reverse? So maybe to shift gears again a little bit, Kumar.
I think one of the interesting things that you just brought up in terms of will they be as much of a protector? There is kind of an open question of if they're growing so much, do they become the market? Often this is one of the arguments against some of the large companies and the concentration risks in the U.S.
equity market is at what point do the companies be so large that they can't really grow and outperform the wider market because they are the market, right? I don't think we're there yet on the hedge fund side.
When you look at something like a measure of leverage in the hedge fund universe, this has certainly been a focus by many different folks within the industry, outside of the industry, regulators, etc.
Leverage levels and the amount of borrowing is objectively higher and has been trending higher over time.
And by this, I mean, if you think about how much the market has grown, it's grown significantly in the last five, 10 years, whether it's the performance of a lot of markets or the overall market cap or the turnover.
I mean, one of the things in the equity market that's happened is you have this influx of retail investors.
And so the thing is, when you have... higher asset levels, and more turnover, well, if you are a hedge fund that likes to make long and short bets and trade around things, there's more to do, right? And so we're only seeing the total assets on a levered basis kind of keep up in line with those market metrics rather than exceed them.
I think it's one of these things where as long as the markets hold up, Really, there's not necessarily this big disconnect where we've overshot in terms of the hedge fund leverage.
So that'll be something to watch, though, over the next few years and could depend on do we continue to see this AI-led growth and wider market kind of performance and economic growth continue? Or is there something that really causes that to slow down or reverse? So maybe to shift gears again a little bit, Kumar.
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