As global markets continue to roil over debt crises in the U.S. and abroad, Wall Street’s most prescient money managers are becoming increasingly reluctant to make bets. Bloomberg reports that Keith Andersen, manager of George Soros’ $25.5 billion Quantum hedge fund, has advised his team to stand pat, currently holding 75% of its assets in cash as it “waits for better opportunities.” The fund has lost some 6% of its assets in trading this year, and is one among many underperforming outfits in 2011 seeking refuge in cash holdings, as Bank of America (NYSE:BAC) reports that 18% of hedge funds are currently “overweight cash,” the highest number in over a year. Famed investor Soros said of the market outlook in April, “I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis.”
Fund managers are not seeing things any more clearly either, as a Chicago survey reports that funds “chasing macroeconomic trends, buying stocks, bonds, currencies and commodities,” have been the worst performing money managers this year, losing 2.25% on average as of June 30th. Goldman-Sachs (NYSE:GS) notes that trading volume has fallen off steeply among institutional investors, as its index of the 50 most traded stocks in hedge funds recorded its lowest rate of exchange in June in nearly two years.
Some investors believe that a resolution to macroeconomic political dilemmas could restore a “risk on” mindset in fund managers and large private investment groups. Harry Lengsfield of KLS Diversified Asset Management says a debt-ceiling deal could help restore confidence, “While de-risking was the right thing to do [earlier this year], we’re getting close to the end now. We’ve seen a significant widening of spreads, which throws up a number of good opportunities over the coming weeks.” Others are hopeful that a resolution to European credit issues, notably Greece, would bring an end to the lull in trading confidence, “It’s conceivable that if Greece were to default, that would spark a rally in the markets, often disasters mark the bottom.”