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June 10, 2014 at 05:21 PM
More than 500 hedge fund managers currently each manage $1 billion or more in assets, according to the alternative-assets research firm Preqin.
These firms represent about 90% of total industry assets, comprising a significant proportion of all capital managed by hedge funds.
Recent positive performance and investor inflows have fattened hedge fund coffers to approximately $2.7 trillion. Volume is also increasing: more than 4,600 fund managers now manage upward of 10,500 funds, up from 4,150 managers running some 10,000 funds in May 2013.
In a new report, Preqin examines what it takes to stride the towering heights of the industry and be a member of the “$1 Billion Club.”
Track Record
Preqin research found that the largest hedge fund managers typically have the longest track records, demonstrating that they could perform consistently through many market cycles and surpass various competitors.
The study noted that the median establishment date of managers with more than $20 billion under management was 1991, making them brand names.
The mean establishment year for managers with $1 billion to $4.9 billion in assets was 1997.
Some 54% of fund managers with more than $1 billion in assets have been established since 2000, with the newest ones founded in 2012. No fund managers that launched in 2013 are known to have reached the $1 billion mark.
Strategies
Besides long track record, strategy choices emerge as another pattern in the $1 Billion Club. Forty-two percent of all funds managed by club members use long/short, the predominant strategy.
Whereas 46% of managers in the $1 billion to $4.9 billion range employ long/short, only 32% of those with more than $20 billion in assets do so.
Long/short funds can have capacity constraints because of limited investment opportunities restricted by geography or section in which the manager invests. The same is true for niche strategies, which explains why only 3% of funds belonging to managers with more than $20 billion use them, Preqin said.
