Hedge funds have increased their cash assets to nearly one-third, one of their highest ever levels, as poor returns and the turbulent markets increase the possibility of mass redemptions from the sector at the end of the year. However, they have discovered that even holding cash can have liquidity risks, after a flagship money market fund temporarily halted withdrawals this week.

US investment bank Citi has estimated in research that hedge funds currently hold about 30% of their investors' money in cash, up from about 20% before the onset of the credit crunch last year.