Tuesday, September 09, 2008

When In Rome

As a follow up to my "pathetic" 401K post last week, here's an article from the NY Post:

HEDGE HOGS HUNKER: SHELL-SHOCKED FUNDS REDUCE RISK, POTENTIAL REWARD
By KAJA WHITEHOUSEBy KAJA WHITEHOUSE

Posted: 4:13 am
September 9, 2008

Hedge funds - the daredevils of Wall Street - are backing away from risk, fearful of getting beaten up by the market's persistent turbulence.

JPMorgan Chase's Highbridge Capital and Phil Falcone's Harbinger Capital are among a growing number of big-name hedge funds that are hunkering down, moving into cash and reducing the use of borrowed money, or "leverage," to inflate returns, sources said.

"Markets are irrational and the best thing to do when markets are irrational is to move into cash, increase liquidity and take down risk," said an official at Harbinger, which manages $21 billion.

"A lot of smart hedge funds are sitting on cash right now, and that's the position we've taken," said an employee at Highbridge, the $28 billion hedge fund shop in which JPMorgan holds a big stake...

In some cases, hedge funds - especially the poor performers - are being pressured by their lenders, known as prime brokers, to reduce their risk.

Goldman Sachs, for example, is "tightening up their risk management and forcing funds to deleverage," said a person familiar with the situation.

Goldman officials didn't respond to a request for comment.

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