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Billion-Dollar Hedge Fund Managers Command 92% of Fund Assets

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The global hedge fund sector grew to nearly $3.2 trillion in the first quarter, managed by 5,122 single managers, according to a new report from Preqin, the alternative investment data provider.

But just 11% of those managers — members of Preqin’s $1 billion club — commanded 92% of industry capital, $2.8 trillion.

At present, some 570 managers around the world manage at least $1 billion in hedge fund assets, a year-over-year increase of 63 managers, according to Preqin.

Of these, 418 have aggregate assets under management between $1 billion and $4.9 billion, totaling $892 billion, or 28% of industry assets.

Twenty-two managers handle $20 billion or more for a total of $790 billion, or 25% of industry assets.

Following are the 10 biggest hedge fund managers, according to Preqin:

  1. Bridgewater Associates, U.S., $169.5 billion (March 31)
  2. AQR Capital Management, U.S., $64.9 billion (Dec. 31)
  3. Man Investments, U.K., $50 billion (March 31)
  4. Och-Ziff Capital Management, U.S., $47.2 billion (May 1)
  5. Standard Life Investments, U.K., $35.3 billion (Dec. 31)
  6. BlackRock Alternative Investors, U.S., $31.8 billion (Dec. 31)
  7. Winton Capital Management, U.K., $31.1 billion (March 31)
  8. Viking Global Investors, U.S., $30.3 billion (Dec. 31)
  9. Millennium Management, U.S., $29.2 billion (May 1)
  10. Lone Pine Capital, U.S., $29 billion (Dec. 31)

Advantages of Size

Preqin reported that smaller managers were more likely than other asset segments to offer equity strategies, possibly reflecting difficulties in scaling core equity strategies funds without negatively affecting performance.

At least 27% of all $1 billion club members run equity strategies funds, and 41% of managers with between $1 billion and $4.9 billion in assets do so.

For managers with $20 billion or more in assets, 18% offer macro strategies, and 24% offer multi-strategy funds.

Multi-strategy’s prominence among elite managers’ offerings can be explained in part by investor interest in its 12-month performance to April: the Preqin Multi-Strategy benchmark gained 8.5%, compared with 7.2% for all hedge funds.

In addition, larger managers tend to have the infrastructure and internal resources to build more complex multi-layered strategies.

Preqin said these managers can profit from using a multi-strategy approach as this can provide further diversification within a single manager structure, offer more scope to generate absolute returns and reflect the greater scalability of their funds.

According to the report, the largest fund managers are more likely to offer a variety of strategies to their investors, which can result in consistency of performance that allows them to grow their assets.

Forty-one percent of the biggest managers offered four or more strategies, compared with 11% of managers with $1 billion to $4.9 billion in assets; more than half of these offered their investors just one strategy.  

Brand Names

The Preqin report showed that the biggest hedge fund firms in the $1 billion club were several years older on average that the smaller ones, highlighting the long track record for a large number of these managers.

The average year of establishment for members with $20 billion or more in assets was 1992, while the average establishment year for their smaller counterparts was 2001.

Several new firms that launched during the past year have amassed $1 billion or more in assets, and more are targeting similar results in 2015, Preqin reported. It said that a common feature of the new rollouts was that their founders had been senior employees at other $1 billion club firms, indicating how important investors consider the pedigree of a brand-name firm.

It noted, however, that even though these spinouts were able to bring a track record and some of their existing assets to the new firm, they would likely need more time to grow into one of the largest organizations.

“Within this group of elite fund managers, many have steadily grown their assets over decades demonstrating a consistently strong track record over many market cycles,” Preqin’s head of hedge fund products, Amy Bensted, said in a statement.

“Some newer entrants have either demonstrated superior performance in a shorter term to accumulate their assets or have spun out of existing $1 billion club firms to attract significant pools of capital to their new ventures.”

According to the report, 202 $1 billion club firms are located in New York, up from 175 firms last year, and manage upward of $1 trillion of assets.

London is the second most populated location of managers in the club, with 83 headquartered there, managing $363 billion in assets.