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60/40 vs Leveraged Diversified Portfolio

Leverage can cut both ways

Nicolas Rabener
10 min read
4 Aug 2025

SUMMARY

  • Leverage is usually a destructive feature in investment products
  • However, using leverage with diversified portfolios can help achieve specific investment objectives
  • Bonds are not necessarily needed in asset allocation when considering alternatives

INTRODUCTION

When CalPERS announced in November 2021 that it would use a modest amount of leverage to boost its private equity exposure, the move drew sharp criticism from some investors who viewed it as excessively risky.

Yet, many of those same investors are eager to gain access to large multi-strategy hedge funds like Millennium and Citadel, which routinely use 5x to 10x leverage. So why does this form of leverage raise fewer concerns?

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