Last April, Canyon Capital Advisors had little cash to spare between positions in Altaba’s stock, Puerto Rican debt and a raft of high-profile mergers.

Now almost 12 months later, the $16.3 billion hedge fund is keeping more than 20% of its cash on the sideline. That amount could rise even further as Canyon sells positions in companies undergoing mergers and other corporate events, co-founder Josh Friedman said in a television interview yesterday.

“Our long exposure is probably less than at any time in recent memory,” Friedman said. “Our equity exposure…is something below half, around half of what it was maybe last April or so.”

Friedman’s shift comes as other hedge fund managers focusing on distressed companies stockpile reserves for an expected period of economic weakness. Marathon Asset Management is raising as much as $2 billion for a fund investing in companies undergoing reorganizations.

Friedman said economic weakness in China and Europe and low interest rates in the U.S. have contributed to Canyon’s cautious stance. Federal Reserve chair Jerome Powell held off on raising interest rates in late January, a reversal of earlier plans for two or more hikes this year.

“The bullishness following Powell’s reversal seemed so extreme and so rapid—it just seemed to us like an overreaction and a time to take risk down,” Friedman said.

Canyon’s flagship Value Realization fund gained 5.4% through February after falling 2.5% last year. The fund held more than half its portfolio in equities and so-called risk arbitrage trades at the end of March last year, according to an investor document. Canyon is largely known for investing in high-yield bonds and loans.

Last year, the fund was one of the largest investors in Altaba, the holding company for Yahoo’s legacy assets that has found popularity among hedge funds. Canyon exited the investment in the fourth quarter after owning as much as $3.2 billion of the closed-end company’s shares in the second quarter, according to regulatory filings.

Short CMBX

Friedman said Canyon now holds “in excess of $1 billion” worth of short bets against CMBX indices tracking commercial mortgage-backed securities. Josh Birnbaum’s Tilden Park Capital Management and other structured credit hedge funds have favored the trade, which Friedman described as a “hedge” taking advantage of weakness in the retail sector and the structure of the CMBX securities backed largely by mall properties.

“We have something like eight times the square footage of Germany per capita of retailing,” Friedman said. “We just don’t need all that retail space.”

Speaking about the current debate surrounding credit default swaps, Friedman said Canyon avoids the kinds of trades that have drawn scrutiny to other hedge funds. The International Swaps and Derivatives Association this month proposed changes to kinds of credit events that can trigger CDS payments following battles at the home builder Hovnanian and telecommunications company Windstream over the practice.

“These kinds of things tend to be late cycle behavior when there’s not enough yield to go around,” Friedman said.

“It’s not good behavior,” he added. “It’s the kind of thing that makes you think twice about doing business with the same people again.”

Canyon turns cautious following Powell U-turn on Absolute Return.