Hedge fund strategies leverage

Hi all,

The reading of hedge fund strategies, it’s discussed the leverage of each strategy, i.e. long/short equity need to use leverage while distressed securities strategy make low use of leverage. Is there any logic to this or it’s just smth to learn by heart?

Thank you

Distressed Securities is an illiquid strategy and hence you will use lower leverage. For mostly all low liquid strategies, you use low to no leverage since these secs are not easy to transact in and borrowing costs are very high.