The study shows, for a large sample of European Alternative Investment Funds (AIFs), that open-ended leveraged funds experience greater investor outflows after bad performance than unleveraged funds. This can be explained by investors expecting proportionally larger valuation losses when remaining invested in leveraged funds.
During stressed periods, leveraged funds need to delever proportionality more than unleveraged funds in order to obtain liquidity to cover margin calls and higher haircuts on leveraged positions. Also, leveraged funds have to sell relatively more assets following redemption requests to keep the leverage ratio constant.