From Kirsten Bischoff, Opalesque New York: A Merrill Lynch and Capgemini survey reported one effect of the current market environment is investors redeeming funds from floundering strategies in a flight to cash (Source). Additionally, according to another study by Greenwich Associates and Global Custodian, “hedge fund managers around the world responded to last year's difficult market conditions by lowering leverage ratios and moving a significant share of their assets into cash.” (Source)
In addition to deleveraging during market turmoil, the trend to increase cash assets can also be seen as single strategy managers gather cash assets in order to pounce on anticipated opportunities (perhaps the perceived imminent opportunities in distressed debt, or the eventual rebound of financials). Indeed fund of funds have also begun to grow their cash assets whether they are newly formed joint venture seeder funds with the resources to wait for the next “phenom” manager, or a team requiring a cash buffer so new opportunities don’t hinge on redemptions from other investments. Whatever the reason, it seems as though quite suddenly cash has become a larger, strategic portion of many hedge fund portfolios.
For a closer look at industry trends in cash holdings Opalesque recently spoke with Pauline Modjeski, President and Executive Managing Partner at Chicago-based Horizon Cash Management. Modjeski, a recipient of Institutional Investor’s “20 Rising Stars in Hedge Funds” Award in 2008, has been with Horizon since its inception in 1991 and was appointed President in January of this year. This spot in the industry has allowed her a bird’s eye view of manager reactions to everything from the credit crisis to the prime brokerage fallout of Bear Stearns....
Source:
http://www.opalesque.com/AMB2008/46101Cash_management_trends_and_the_shift.html
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