Hedge funds recorded their second-largest weekly retreat from global equities in 12 months during the week ended Aug. 20, with most selling occurring outside the US. Asia-Pacific led the selloff as funds cut positions in Japan, China, South Korea and Taiwan, concentrating on semiconductors, electronic equipment and hardware. Net exposure to Japan, South Korea and Taiwan fell from approximately 23% of global net allocations in late June to about 17% currently. Morgan Stanley prime brokerage desk members including Bill Meany and Ayman Jagani attributed the reduction to weaker relative performance and active de-grossing, a process of reducing portfolio leverage and gross exposure, split nearly equally between US-based and Asian hedge funds. The selling has developed gradually across several weeks rather than through one large exit, following similar but lower-volume activity in June and July.