HedgeCo.Net — The largest multistrategy hedge funds are increasingly exposed to overlapping positions and high leverage, raising the risk that a market shock could produce widespread losses and forced selling, according to research from PivotalPath. The ten firms in the study managed about $2.2 trillion in gross assets, including borrowed capital, at the end of 2025, more than triple their exposure in 2018.
Their combined net assets were $360 billion, which implies leverage of roughly six times investor capital. Leverage was higher among the six firms that run multiple investment pods, which used between eight and 14 times their net capital.
PivotalPath also found that the U.S. equity holdings of the ten largest multistrategy firms overlap more with one another than with other hedge funds, and that their returns have become more correlated since 2019. That points to growing exposure to common market risks rather than the diversification the model is built to deliver.
The firm cautioned that a simultaneous shock hitting highly leveraged managers with concentrated positions could amplify selling and create liquidity problems, especially for funds with shorter redemption periods. It stressed that the findings do not signal imminent disruption, and noted that larger platforms increasingly rely on multi-year investor lockups to reduce liquidity risk.
The central question for allocators is whether pod-level risk limits, which manage each team in isolation, adequately capture the firm-level crowding that emerges when many teams hold similar positions. Lockups address redemption risk, but they do not change how a leveraged book behaves in a fast unwind.