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Hedge funds turn to cash management

Hedge fund managers are paying closer attention to returns on their cash balances, according to a survey of 800 managers by Horizon Cash Management.

Nearly half of those surveyed said they were now using benchmarks to gauge the returns on the cash balances in their portfolios – twice as many as reported this in the same survey in 2001. The result, says Bob von Halle, senior vice-president and director of business development at Horizon, is that an increasing number of funds are looking for an alternative to management of their cash by a prime broker. According to the survey, the number of managers holding cash with a prime broker has decreased from 65% to 59% since 2001.

Cash holdings by the hedge funds surveyed equate to about 15% of all assets under management. “Not an insignificant amount,” points out von Halle. “Managers using leverage products such as futures, options or commodities need only put down a small amount of cash on margin, and so can be left with a large amount of cash on the balance sheet. Many funds also hold cash as a buffer – in case of a margin call, or to invest in a new opportunity if the market changes.”

Typically, managers, particularly in the US, have tended to leave the cash to be invested by their prime brokers, either in money market funds or three-month treasury bills.

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