Hedge funds are betting on a disaster hitting the financial markets within the next several quarters, with managers holding onto historic levels of cash.

That so-called dry powder gives them the cash they need to quickly jump in if markets sell off, according to numerous hedge fund managers and industry consultants.

“Most hedge funds I see are carrying lower market exposure than I’ve seen in some time,” said Brad Balter, founder of investment advisory firm Balter Capital Management. “This is not to say they are net short. They simply want to conserve their buying power and be ready for major opportunity sets that may arise.”

Many are anticipating that Europe’s debt crisis, the U.S. fiscal cliff, or the slowdown in China will cause a 2008-like reaction around the globe, when stocks swiftly sold off in the wake of the financial crisis.

Source: CNN