Going to the mattresses: Cash is king as big name hedge funds seek refuge on the sidelines

With all of the turmoil and new game changers appearing when you least expect it causing tremendous market volatility, some of the best known hedge funds have been heading for cash for the year's final stretch.  Some of those stuffing the mattresses are SAC Capital's Steve Cohen, Millenniumm Partners' Izzy Englander, and Paulson Capital's John Paulson.

While that might be prudent, at least for the short run, that's not why most funds get paid the big bucks, especially with what's paid on cash these days.  Those guys will probably be able to get away with it since even through the turmoil, they've fared better than most.  However, if smaller funds try it, they might not be so successful.  In the hedge fund world, it's a game of 'use it or lose it' if you're not justifying those fees.

The move by the three managers steals a page from old-school hedge-fund managers like Michael Steinhardt, Julian Robertson and George Soros, who would quickly pull in their horns when the market moved against them and remain on the sidelines until conditions improved.

"Steinhardt would routinely go to cash," says John Lattanzio, who was Mr. Steinhardt's head trader at Mr. Steinhardt's hedge fund, Steinhardt Partners, for 25 years. "When he wasn't sure of what was happening, he'd say, 'Sell everything. Let's go to cash.' "

'Smart Money' Stays on the Sides - Wall Street Journal