Leverage

'Leverage' is a US term that is also known as 'gearing'. Both express the extent to which any transaction is financed by debt from lenders as opposed to capital provided by the investor.

Updated February 2019

Leverage means the use of debt to fund an investment, which has the potential to enhance returns, but also to amplify losses. Imagine two funds have investments of £100m. The first is entirely equity-funded (to the tune of £100m), and the second is financed with 50% debt and 50% equity. The following year the assets in the funds double in value to £200m.

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