Hedge Funds Look to Cash Managers

By James Armstrong, Hedge Fund Correspondent

By James Armstrong, Hedge Fund Correspondent

After being stung by "safe" prime broker Lehman Brothers and by money market accounts that couldn't possibly lose money (but did), some hedge funds are looking into not just where their investments are made, but who is handling their cash.

Horizon Cash Management, which specializes in managing cash for alternative investment funds, on Monday announced it had captured more than $600 million in new assets last quarter. The firm said hedge fund managers were looking for more secure custody arrangements, greater transparency and diversification away from a single financial firm.

"The new inflows are proof of our commitment to the preservation of client capital," Pauline Modjeski, president of Horizon, said in a statement. "With continued market volatility, and hedge funds of all types holding larger portions of their portfolios in cash, we expect these inflows to continue."

Most hedge funds have been suffering heavy losses in the economic downturn. According to preliminary data released Tuesday by Credit Suisse/Tremont, hedge funds lost 5.25 percent in October and are down 9.86 percent for the year. Convertible arbitrage funds fared the worst, losing 10.70 percent last month and 19.45 percent for the year.

Those abysmal numbers, combined with large redemptions, have led many managers to switch to large cash positions. Other hedge fund firms, including GLG Partners, have reportedly placed limits on redemptions.

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Posted on Nov. 11, 2008