Gross exposure spike

Hedge funds are carrying unusually large books of longs and shorts at the same time, even as their overall directional bet on stocks stays relatively restrained. (goldmansachs.com) Goldman Sachs said on January 29, 2026 that gross leverage in its full prime brokerage book rose for a third straight year to a record by the end of 2025, while net leverage sat near three-year highs. Gross leverage measures the total size of long and short positions combined, not the market view after they offset each other. (goldmansachs.com) The Office of Financial Research defines gross notional exposure as the sum of the absolute value of long and short exposures, including off-balance-sheet trades such as derivatives. It defines leverage as gross assets divided by net assets, a ratio regulators track because borrowing can amplify losses and trigger margin calls. (financialresearch.gov, financialresearch.gov) A fund can look cautious on net exposure and still run a very large book. A portfolio that is 100% long and 80% short has 180% gross exposure but only 20% net exposure, which means a small directional stance sitting on top of a much larger set of stock-specific bets. (financialresearch.gov, corporatefinanceinstitute.com) That mix has become more visible after a volatile start to April. Citadel Securities’ April 7 market note described a “high gross exposure” and “low net exposure” setup, said clients remained “tactical and well-hedged,” and said fewer new hedges were being added as markets stabilized after aggressive de-risking. (citadelsecurities.com) The positioning matters because high gross books can force fast trading even when net exposure looks modest. The Office of Financial Research says leveraged hedge funds depend on creditors’ willingness to keep lending, and falling collateral values can lead to margin calls that force funds to sell liquid assets. (financialresearch.gov) The Bank for International Settlements has made the same point at the bank level. In a March 2024 review, it said prime brokerage gives hedge funds leverage through derivatives and securities financing, and warned that opaque positions and poor risk management can create vulnerabilities for prime brokers, as seen in the Archegos collapse. (bis.org) The backdrop is not one of blanket risk-taking across every strategy. Goldman said non-U.S. markets, especially emerging markets, led the increase in gross market values in 2025, while hedge funds also rotated into semiconductors and semiconductor equipment and cut software exposure to fresh five-year lows. (goldmansachs.com) Investors and regulators usually read that combination as a sign that managers want relative-value trades more than a big one-way market call. The result is a market where factor shocks, crowded trades, financing terms, or sudden short covering can matter as much as the broad direction of the S&P 500. (financialresearch.gov, bis.org, goldmansachs.com))