Hedge funds are using near-record levels of leverage to trade equities and betting on debt-backed strategies in efforts to juice returns, making the most of markets buoyed by a boom in artificial intelligence. Over the past few years, debt-fueled strategies have surged as funds have become larger and more complex. That trend is starting to raise concerns about whether the higher use of leverage could expose them and the broader market to steeper losses in the event of a correction.

"We are seeing leverage around historical highs on our books," said John Schlegel, head of positioning intelligence at JPMorgan. "When you look at the amount of exposure relative to liquidity in the markets, markets have gone up pretty materially from pre-COVID to now - much faster than the hedge fund AUM (asse

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