PT - JOURNAL ARTICLE AU - Steven Christie TI - Downside Leverage and Event Risk in Fund of Funds Portfolios AID - 10.3905/jai.2007.695269 DP - 2007 Sep 30 TA - The Journal of Alternative Investments PG - 68--75 VI - 10 IP - 2 4099 - https://pm-research.com/content/10/2/68.short 4100 - https://pm-research.com/content/10/2/68.full AB - Although leverage is important in any portfolio because of the upside and downside variability it adds, the focus often is on the magnified risk, i.e. the downside amplification, that it produces. During severe market disruptions, the leverage risk in fund of funds portfolios may be mitigated by the fact that losses can only take the constituent hedge funds returns down to a zero return and no further. Clearly, the maximum these funds can lose is 100% of any capital investors have committed. However, calculations of the downside leverage of fund of funds in the face of these situations are overestimated because this fact is not accounted for. This article provides a simple formulation for a corrected fund of funds risk leverage. Its implementation is demonstrated with several examples.TOPICS: Real assets/alternative investments/private equity, risk management, financial crises and financial market history