Hedge Fund Cash Levels Hit 31%

While I would take the 31% number with a grain of salt, nobody can argue that hedge funds have been selling securities and raising cash fast and furious to meet redemptions. But a survey completed last week by Sanford C. Bernstein indicates we might be at the halfway house going into Thanksgiving, and on the back nine as we close out the month.

Hedge funds are about halfway done selling securities to reduce their use of borrowed money and may unload $200 billion more to complete the process, according to managers surveyed by Sanford C. Bernstein & Co.

The survey found that 63 percent of hedge-fund managers said the sale of assets to cut leverage was at least half completed. Twenty-three percent said the process was three- quarters finished, New York-based Bernstein said. Bloomberg

Nothing is worse than being forced to puke your portfolio at ten year lows, particularly for valuation sensitive managers who never expected to see such enticing valuations, but sell they must. And before you dismiss the survey results, not that these were not pikers:

“We estimate that roughly $200 billion will be additionally unwound,” Adam Parker, an analyst at Bernstein wrote in a Nov. 21 report to clients. The survey was based on interviews in the first two weeks of November with managers of more than 65 hedge funds overseeing a combined $100 billion.

And while this theory seems a bit too simplistic, the money managers surveyed are keeping their eye on the VIX, which they believe will provide a clue to the end of the deleveraging process.

Some respondents said they expect deleveraging to continue as long as the Chicago Board Options Exchange Volatility Index, known as the VIX, remains elevated, Parker said.

They must appreciate having some strength to finally sell into; keep in mind that the managers surveyed were largely equity managers, with a smattering of fixed income and commodity traders also responding.

Good news, for stocks, to be sure, and maybe these markets seem to be a case of buying begetting buying, and selling begetting selling.

I never thought we would see valuations, on a price to sales, or a price to book basis, get this compressed. Selling stocks here must pain the managers, but without permanent capital they have little choice.

Sucks for them.

Hedge Funds May Sell $200 Billion More of Assets, Survey Finds
Bloomberg
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