Moneynews
CNNMoney: Hedge Funds Hoarding Cash, Expecting Disaster
Thursday, August 23, 2012 12:36 PM
By: Michelle Smith
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Hedge fund managers are holding on to historic levels of cash because they are betting on disaster hitting the financial markets within the next several quarters, according to CNNMoney.
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Many are anticipating stocks to be swiftly sold off in the wake of a financial crisis caused by Europe's debt crisis, the U.S. fiscal cliff or the slowdown in China.
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Such looming macroeconomic threats are commonly cited as causes of fear and uncertainty, but generally the focus of those conversations is nervous retail investors. Money managers are usually viewed as individuals with the skill and experience to navigate the markets through varying conditions.
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This is, after all, the reason that individuals entrust professionals with their money.
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But, many people do not realize that money managers have been displaying risk-averse behavior for quite some time.
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Since cash was crowned king during the 2007 credit crisis, its dominion has grown, according to the Institutional Investor.
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Reuters recently reported that hedge funds generated 24 percent of the overall volume of fixed-income trading from April 2011 to April 2012, which shows that even the professionals are increasingly looking for safety.
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Many are also looking for safety that is readily accessible in a worst-case scenario, and little trumps cash in that regard.
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However, CNNMoney says betting on a downturn in this environment is a risky play. Because of their defensive posture, hedge funds have missed out on the 2012 rally.
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Doom has been in the forecast for a long time but has yet to materialize.
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Daniel Celeghin, partner at hedge fund consulting firm Casey, Quirk & Assoc., warns CNNMoney that investors could get irritated with this safeguard strategy.
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“It's a natural reaction to say, why am I paying you to hold cash,” he notes.
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