Hedge funds may have to change tactics, notably by cutting their leverage, and adapt to regulations that likely will restrict their investment strategies, according to a recent report about the $2 trillion alternative asset management industry published by Standard & Poor’s.

“Investors will be more attracted to hedge funds that use low-to-modest balance-sheet leverage relative to their investment strategy in conjunction with a strong risk-management system,” says S&P. The rating agency defines funds with low leverage as those with 1x to 2x assets to risk capital.

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