Financial Times – Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns.

Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash.

However, last week, 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.

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Tags: banking-sector, contagion, curbs, department-of-the-treasury, fund-groups, indexes, investment-funds, marc-bailey, new-york-board-of-trade, turnover, vanguard-group

Times Online – Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk.

The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king.

Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s apparently unstoppable growth — were sold, with food and metals tracking the sharp declines in crude oil.

Dealing floors in Asia descended into mayhem as analysts forecast a period where commodity markets were effectively “frozen” by a sudden drought of fresh capital.

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Tags: brink, chief-executive, downfall, downside, feedback-loop, index-funds, indexes, inflated-prices, lehman-brothers-holdings, london-reuters, naro

Hedge Funds Review Magazine – Greenwich Associates conducted a study of 146 institutions in North America and Europe to determine how fears of counterparty risk were affecting institutional investment and trading strategies.

The study revealed that 37% of participating institutions have over $50 billion in assets under management. A further 18% have more than $100 billion.

Survey respondents were divided between 32 hedge funds, 114 banks and traditional long-only investors, with the majority domiciled in the US (70%) and 30% in Canada and Europe.

Among US institutions, 85% sees credit default swap (CDS) counterparty risk as a serious threat to global markets. Institutions in Europe are slightly more sanguine; with just over 55% describing CDS counterparty risk as a significant danger.

Over 905 of hedge funds, however, said they see counterparty risk relative to credit default swaps as posing a significant threat to global markets.

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Tags: 1-million, allegations, beta, conspiracy, critical-challenges, external-managers, financial-services-firms, fund-groups, indexes, levies, loans, medallion, methodology, regional-capital, traffic