leverage

Leverage is basically using debt or sometimes derivatives to magnify returns.

Operational leverage

Operating Leverage measures the proportion of a company’s cost structure that consists of fixed costs rather than variable costs. Companies with high operating leverage can expand profit margins more quickly when revenues rise.

LDI

LDI is an acronym of Liability Driven Investing. The idea is that pension schemes use LDI to match their investments with their long-term pension liabilities. Many went about that by buying leveraged portfolios of government bonds. Famously, in September 2023, the Liz Truss/Kwasi Kwarteng budget crashed the UK government bond market and LDI magnified the […]

Active ETF

Exchange-traded funds have been one of fastest growing fund structures created for investors in recent years. An ETF is a basket of securities that you can buy or sell through a trading platform on a stock exchange. ETFs are normally offered on a wide range of asset classes from traditional investments to so called alternative […]

Basel IV

Basel IV describes the changes agreed in 2016 and 2017 to the international banking standards known as the Basel Accords. Basel IV introduces changes that limit the reduction in capital that can result from banks’ use of internal models under the Internal Ratings-Based* approach. These include: A standardised floor, so that the capital requirement will always […]

buy-outs, MBO and LBO

Buy-outs involve backing a management team to acquire the business that they work for. From this we get MBO (management buyout) and LBO (leveraged buyout, where debt funding forms a significant part of the finance for the deal).

Interest rate arbitrage or interest rate relative value

Interest rate arbitrage funds or interest rate relative value funds invest in debt and seek to profit from predicting moves in interest rates (yields). They are often market neutral and may be quite highly leveraged as they seek to exploit small changes in value.

Equity hedge

Equity hedge funds can be long/short funds that have a portfolio where the long positions are more or less offset by short positions, or equity long bias, funds that are almost always net long. These funds may seek to sell an investment they think is going to fall in value and buy a corresponding investment that […]

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leverage