Bridger PenningtonFund Launch & Investment Expert

Do Funds Leverage Credit? Yes. In a Big Way.

20 Jan 2023 · 1 min

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Investment funds use leverage to amplify returns. A real estate fund raising $100M can acquire $200-$300M in property by borrowing, gaining cheaper financing and lower capital costs than individual investors could get alone.

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So do funds leverage credit? The short answer is yes, in a large way. So for example, if there's a real estate fund, they raise $100 million. Oftentimes that allows them to go buy maybe $200 to $300 million of real estate. And also because they're doing such large transactions, they get cheaper and cheaper rates from banks. So their cost of capital goes down as they get bigger. This is actually one of the biggest advantages of running a fund versus doing like things on your own or small one-off deals is because funds get access to way bigger amounts of capital and capital that's much cheaper.