Hedge fund retreated to money market fund

Hedge funds charge hefty fees for sophisticated trading strategies aimed at outperforming the wider market, but according to a report from Citigroup, hedge funds are estimated to have now placed $600bn in cash, and that $100bn of this is held in simple money market funds typically used by investors seeking safe rather than spectacular returns.

Analysts say the extent of hedge fund investment in money market funds shows how scarce attractive investment opportunities and safe havens have become.

US mutual fund managers are also holding near to record levels of cash. The average actively managed stock fund has 5.4 per cent of its portfolio in cash, according to Morningstar.

However, those money funds became embroiled in the wider financial crisis to the point that the US Treasury was forced to offer a blanket guarantee on them as part of its attempts to prevent the spillover of the financial crisis into the $3,400bn sector.The extreme measures taken by the Treasury followed mounting fears that retail investors in the sector could be starting to panic and might withdraw funds on a large scale.