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Hedge Funds Sitting on Billions in Cash

Thursday, 04 Sep 2008 10:49 AM

It might seem like only oil-rich foreign governments have any cash to invest these days. And they have lots, more than $2.5 trillion by a Morgan Stanley estimate.

But don't count out cash closer to home. Merrill Lynch reports that total investable money right now in hedge funds has hit $156 billion, the highest since data collection began in 1992.

The data considers just net cash in NYSE broker accounts.

"Hedge funds have de-leveraged and continue to increase their record cash balances, which will be a very powerful source when they decide to come back to the market," Merrill Lynch analyst Mary Ann Bartels tells Bloomberg.

"The significant amount of cash on the sidelines is a contrarian bullish'' indicator for U.S. stocks, she says.

The news wire service calculated that the cash horde would be nearly enough to buy General Motors, Alcoa, DuPont, Caterpillar, and American Express combined. The five companies have a combined market value of $159.9 billion.

Hedge funds might be under pressure to put some skin into the game soon enough.

The average hedge fund has slipped 3.43 percent in the year's first seven months, according to Hedge Fund Research.

That's the worst performance for hedge funds since at least 1990, when the firm began tracking the data.

While hedge funds have far outperformed the S&P 500, which plunged 12.65 percent this year through July, they lag the 1.05 percent increase in the Lehman Brothers bond index.

"You would think that investors would view hedge funds as having a good relative year, but my strong sense is that most people are not pleased," Reid Bernstein of OneCapital Management Partners, which invest in hedge funds, tells The Wall Street Journal.

"Down is down, and as the saying goes, you can't eat relative returns."

Major funds, including those run by luminaries Ken Griffin, Steve Mandel, Dinakar Singh, Tim Barakett, and Tom Steyer, are down between 6 percent and 25 percent this year, according to The Journal.

So it's not surprising that the net inflow of money into hedge funds plummeted 75 percent to $30 billion in the first half of the year from the same period in 2007.

"There's clearly greater uncertainty about investment flows to the industry for the rest of the year," Jack Inglis of Ferox Capital Management, a London hedge fund firm, tells The Journal.

The turmoil at weak funds enables stronger ones to poach their best workers.

"We have been aggressively looking for talent, and in a year like this, there are a lot more candidates out there," Barry Colvin of Balyasny Asset Management, a Chicago hedge fund firm, tells Bloomberg.

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It might seem like only oil-rich foreign governments have any cash to invest these days. And they have lots, more than $2.5 trillion by a Morgan Stanley estimate.But don't count out cash closer to home. Merrill Lynch reports that total investable money right now in hedge...
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2008-49-04
Thursday, 04 Sep 2008 10:49 AM
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