Biggest multi-managers add over$50bn since 2020 | With Intelligence

Biggest multi-mangers add over $50bn since 2020.

The HF giants are winning the race for both talent and assets

 
Michael Rodwell | Brett Haensel | Caroline Ryan

16FEB2022

The six largest multi-strategy hedge fund managers added $53bn in assets over the past two years, data from With Intelligence’s latest Billion Dollar Club survey has found. 

Millennium Management and Citadel grew the most in absolute terms and have seen their assets reach new heights, adding $12.6bn and $14bn respectively since January 2020 – although Citadel’s fund has been ‘soft closed’ for a number of years.

Point72 Asset Management, ExodusPoint Capital Management, Schonfeld Strategic Advisors and Balyasny Asset Management have also received influxes of capital, making them each$10bn+ shops.

The top six platforms now collectively manage $157bn, a 51.4% rise over the analysis period.With Intelligence estimates that over three quarters of that growth was generated fromperformance. The average return of these platforms was 20.5% in 2020 and 12.9% in 2021compared to a 9.7% and 10.6% return from the average Billion Dollar Club hedge fund.

The growth of these multi-managers has outpaced other large hedge fund firms. Bycomparison, average asset growth of $1bn+ hedge fund managers was just 5% in 2020,according to With Intelligence research.

Emerging managers, according to a recent Goldman Sachs study, have also been left behind as“about 60% of gross inflows in dollar terms went to existing managers in (allocators’)portfolio(s).”

Aaron Steinberg, head of prime services sales and capital introduction at BNY Mellon|Pershing,said institutional investors’ familiarity with bigger name platforms and a preference for theirmulti-PM structure has been a “significant” benefit to asset raising over both emergingmanagers and more traditional hedge funds.

“I do think that there is an element of either real or perceived risk mitigation by allocating tothese known (multi) managers with whom they have existing relationships or have hadrelationships with in the past and who they’ve already conducted strong due diligence andtrust them to go through their process of manager selection and, candidly, the weeding out oflower performing managers on the platform,” Steinberg said.

Longer lock share classes are also being accepted by investors. Millennium now has the bulk ofits assets locked up for as long as five years, according to reports.

Schonfeld launched a longer duration share class last October and has seen positive initial subscriptions.

“The intention behind raising a longer lock class is to continue to build a capital structure that best positions us to make the necessary investments in the operating and capital expenses of the business. We take into account our long-term commitments to our portfolio managers andour long-term commitments to invest in certain technology, systems and resources. Ultimately, this ensures that we provide the best platform and the best offering to our talent. It has beenvery well received by investors,” said Katie Samuels, chief of staff to the CEO & CIO at Schonfeld.

It is understood that Schonfeld currently provides a 2.5% discount incentive fee for longer lockshare classes.

With longer duration capital these platforms are now eyeing private markets. Dmitry Balyasnyhas added a new unit called BAM Elevate that will allocate roughly 3% of the Atlas Hedge Fundassets into private companies, he also said he expects his peers will follow suit.

Attracting top talent

The growth of the biggest multi-manager platform has coincided with a slowdown of institutional-grade hedge fund launches.

With the exception of 2018, assets raised by startups has been trending downwards over the past six-years, while the headcount at the top multi-strategy platforms grew by an average of47% over the last two years.

Mounting challenges such as regulatory changes, infrastructure needs, and overall expenses are making it more attractive for portfolio managers to raise assets for a larger firm, rather than opening their own.

“To start your own firm, you need a strong organization, investment team, investment philosophy and risk controls alongside clear marketing and distribution expertise. What managers need to think about is, do I have the resources to fund my firm for a couple years?…If the answer is no, then participating in one of these platforms is a good idea,” said Don Steinbrugge, CEO and Founder of placement agent Agecroft Partners.

“As these multi-managers continue to grow they become harder for other firms and managersto compete with. Seeing that, existing and aspiring portfolio managers give into the logic of ‘ifyou can’t beat them, join them’.”

As top investing talent continues to migrate to the biggest multi-managers, it reinforces the idea that investors should be concentrating their money into those particular firms.

“Their technology is just extremely advanced, their trading tools, their analyst tools, treasury financing, etc. allow PMs to function and to execute at a level that is much more challenging to do if you are launching your own fund,” Pershing’s Steinberg said.

Multi-managers are also rolling out the red carpet for the best talent, according to Tyler Robinson, senior vice president at recruitment specialist Selby Jennings, with incoming investment team members negotiating incentives around non-competes, ownership overintellectual property, discretion over where and how they work.