Hedge Funds Shed Glamorous Image In Dash For Cash

by Carla Johnson, InvestorsOffshore.com, London

24 September 2001

The signs are that the damage being suffered by equity markets around the globe is not being reflected in investor attitudes towards hedge funds. International hedge fund manager Man Group, for instance, which had a brokerage unit in New York's World Financial Center, says that the terrorist attacks in the US had resulted in "no material disruption to customer volumes". The group, which recently listed on the UK's stock market, said it was experiencing strong investor appetite for hedge funds.

Stanley Fink, chief executive, said the investment performance of AHL - its largest group of funds - had been strongly positive since its July trading statement, with most of the funds standing at or above the levels that trigger performance bonuses for fund managers. Commenting on rumours that hedge funds had taken aggressive short positions after the New York catastrophe, Mr Fink said it was untrue as far as he knew: "We've actually been a net buyer of equity indices over the last month because of the volatility."

Man Group is not alone in taking a cautious attitude to the markets in current conditions. Most funds already held large cash positions before the terrorist attacks triggered a widespread selloff in global markets, and most hedge fund managers have responded to last week's equity market sell-offs by trimming long positions even further in favour of cash.

William Grayson, Managing Director of EGM Capital in San Francisco told the Wall Street Journal that he has left his cash position unchanged because the prospect of military action causes emotional market behaviour, so that it's difficult to make investment decisions based on purely fundamental analysis. "We are getting close to a 20% decline for the week, which is staggering," Grayson said. "I think there will be, and are, some compelling bargains out there, if you have a really good long-term view - It's just the incredible uncertainty." Grayson said EGM Capital's funds had held up relatively well last week, compared with the market's decline, with a strong performance by its short positions offsetting much of the losses in its stock holdings.

It's thought that many funds are holding as much as 80% of their assets in cash at present, and the general trend in the last two weeks has been to increase cash. Cash management firms that provide services to hedge funds reported higher than usual inflows last week.

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