With the global markets in turmoil, Glenn Dubin, founder of Highbridge Capital Management, told CNBC his hedge fund is acting defensively by dramatically cutting risk, reducing its balance sheet and crossing strategies in different regions of the world.
"I think when people are shedding risk as dramatically as they've been shedding risk recently, what tends to happen is correlations get very high," he said.
This makes it tough for investors to position themselves on either the short or long side of the market, so "the best course of action is to simply take risk off," he said.
Although this strategy may prove to be a self-fulfilling prophecy, driving down values as other investors take the same defensive moves, it's better than the alternative—being the last one to remove risk, Dubin said. But his $2.2 billion hedge fund, owned by JPMorgan , will not short any assets.
Dubin said he's been "shocked" by the environment in 2010, explaining that he expected to be able to extract returns after two volatile years. He said he had felt "reasonably confident" the global economy was on its way up, with the US and China seeing growth.
"Then, of course, the sovereign debt crisis hit a wall and all bets are off," he said.
The most recent global action to shake his confidence was Germany placing curbs on naked short selling. He equated the move to the United States' emergency ban on short-selling in 2008, which "sucked confidence out of the market," he said.
As for the US, Dubin added that the financial reform bill has also caused concern, as investors aren't yet sure what implications it will have.
"The market hates uncertainty," he said.
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Disclosure information was not available for Dubin or his company.