NEW YORK (CNNMoney.com) - A meltdown in emerging markets and some commodities strategies, combined with lower tolerance for risk and rising yields on money market funds, has led hedge funds to put more money in cash.

The so-called hedgies are not alone, as fund managers across the board are allocating more to cash. Roughly 29 percent of fund managers surveyed by Merrill Lynch reported being overweight cash, the highest-ever reading the firm's monthly fund manager survey has ever recorded.

Cash holdings climbed to 4.5 percent, up from 4.1 percent in May, according to the survey.

"In light of the market turmoil, it's no surprise to see a sharp rise in cash levels," wrote David Bowers, global equity strategist at Merrill Lynch, in the survey. "Risk appetite dropped sharply while investment time horizon shortened considerably."

Indeed, world equity markets fell 9 percent from mid-May through the first week of June, while emerging market equities plunged 20 percent, causing fund managers to turn defensive and put more money in cash, the survey found.

Zak Green, head of institutional sales at cash management firm The Reserve, said the number of hedge funds who have enlisted his firm's services increased more than 100 percent from the first quarter to the second - from roughly $300 million in the first quarter to upwards of $800 million in the second quarter. Hedge funds make up about 15 percent of the firm's institutional balances.

Green said that the inflows from hedge funds are coming from both new clients as well as existing hedge fund clients who are increasing their cash balances. While his firm has seen increased flows from many different hedge fund strategies, the strategies that have suffered of late comprise a good chunk of that new money.

"A lot of the flows are strategy-specific, from commodity trading advisors (CTAs) and macro funds," said Green. Global macro hedge funds invest in currencies and other instruments in markets around the world.

Like CTAs, macro funds as well as emerging markets hedge funds struggled with melting markets in May. Macro funds posted an average loss of 0.68 percent in May, according to Chicago-area hedge fund tracker Hedge Fund Research. Emerging markets funds posted losses of nearly 4 percent, according to the HFRI Monthly Index. CTAs fell 2.7 percent in May, according to the Credit Suisse/Tremont Hedge Fund Index.

With money market funds returning approximately 5 percent, moving to liquid cash instruments makes sense for the short term, said Green.

"With that cash on the sidelines, (managers) want to maximize it until opportunities open up to put cash to work in their strategy," said Green. "They want to find the best, most efficient way to keep powder dry until the economic climate is opportune for them to engage in their strategies."

The retreat to cash may well be short lived if inflation concerns recede, according to Merrill Lynch's Bowers, who noted that funds appear to have ample liquidity that could be put to work quickly if that happened.

"Equities are still widely seen as fair and/or undervalued," wrote Bowers, adding that a majority of managers surveyed do not think the equity markets will be lower in six months than they are now.

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