From Schweser, LOS 13.37.s, on measuring returns for hedge funds: “Leverage: The convention for dealing with leverage is to treat an asset as if it were fully paid for (ie. effectively “look through” the leverage). When derivatives are included, the same principle of de-leveraging is applied.” I have absolutely no clue what this is supposed to mean. Any help appreciated, thanks, OA.
I am interested in this one too.
You’re just pretending it [asset] was actually paid for. As long as you include the borrowing consistently with beginning and ending value it is a true return. I’m guessing it has to do with the absolute return nature of HF…just because you use leverage in a trading strategy doesn’t mean it isn’t true performance, separating it out is more like attribution (holy @#% I tied it in to another SS…bonus points).