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Portfolio > Alternative Investments > Hedge Funds

‘Billion Dollar Club’ of Hedge Funds Swells

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Although asset outflows dominated news about the hedge fund industry in 2016, the number of investors that allocated $1 billion or more to the sector increased, and now stands at 242 institutions, according to a new report from alternatives data provider Preqin.

And the number of hedge managers with assets of $1 billion or more also increased, despite difficulties besetting some of the largest ones, Preqin reported.

Billion Dollar Club: Investors

During the 12 months to June 2017, 36 institutional investors entered the Billion Dollar Club and 28 exited. Collectively, the 242 investors allocate $805 billion to hedge funds, 24% of total hedge fund assets, and up 6% from the previous year.

Public pension funds, which account for 28% of capital allocated by the Billion Dollar Club, had the highest number of new entrants to the club, 11, over the 12-month period.

The research showed that sovereign wealth funds are becoming increasingly important members of the club. Their number stands at eight, and they represent 17% of capital within the elite investor group. According to Preqin, the ramifications of the investment decisions of this small group of investors can significantly influence the industry.

North America accounts for 61% of capital invested in hedge funds by club members, trailed by 21% for Europe-based investors and 9% for those based in Asia.

Billion Dollar Club members typically allocated 16% of their total assets under management to hedge funds, compared with 14.5% among all other investors.

However, this represents a decrease from June 2016, when club members’ average allocation to hedge funds was 16.8%. Overall, Preqin said, 37% of members decreased their allocations in the past year, while 28% increased them.

Club members expect average returns of 6%, compared with 7% for all other investors. As well, they require underlying funds to have $1 billion in assets under management and a 3.1-year track record, compared with other investors’ requirements of $367 million under management and a 3.5 year track record.

Despite some high-profile redemptions and withdrawals in recent years, the group of the largest hedge fund investors continues to grow and consequently to have great influence over the industry, Amy Bensted, Preqin’s head of hedge fund products, said in a statement.

“These investors are increasingly using their collective might to lobby hedge fund managers to improve the alignment of interests between the two parties,” Bensted said.
“At a time when fund terms and conditions are in the spotlight, this will ultimately improve alignment for all institutional investors in the asset class.”

Billion Dollar Club: Managers

In 2016, hedge fund liquidations hit their highest number since the 2008 financial crisis as investors cringed at poor performance and high fees.

Some of the biggest hedge fund managers felt the effects of negative investor sentiment. Perry Capital, which managed as much as $15 billion in its heyday, closed down, and in March, Eton Park Capital Management, which had $8.8 billion under management in last year’s Preqin study, followed suit.

Against this backdrop, 701 hedge fund managers now manage $1 billion or more in assets, a net increase of 33 managers from Preqin’s year-earlier study. Collectively, this group managed $2.8 trillion, a 4% increase from the previous study and 88% of all capital in the hedge fund sector.

Where the biggest managers, ranked by aggregate assets, are located:

  1. New York: 241 managers, $1 trillion

  2. Connecticut: 43 managers, $360 billion

  3. London: 84 managers, $352 billion

  4. California: 53 managers, $191 billion

  5. Massachusetts: 34 managers, $172 billion

  6. Illinois: 25 managers, $99 billion

  7. Hong Kong: 28 managers, $56 billion

  8. Texas: 16 managers, $51 billion

  9. New Jersey: 13 managers, $44 billion

  10. Stockholm: 5 managers, $35 billion

The two biggest managers in the world are headquartered in Connecticut, which accounts for its high perch on the list.

Following are Preqin’s top 10 managers by assets:

  1. Bridgewater Associates, U.S., $160.8 billion

  2. AQR Capital Management, U.S., $96 billion

  3. Man Group, U.K., $54.9 billion

  4. Renaissance Technologies, U.S., $38.8 billion

  5. Millennium Management, U.S., $34.1 billion

  6. Standard Life Investments, U.K., $34 billion

  7. Och-Ziff Capital Management, U.S., $33.5 billion

  8. Winton Capital Management, U.K., $32.1 billion

  9. Baupost Group, U.S., $31.6 billion

  10. Elliott Management, U.S., $31.4 billion

Hedge funds appear to be on an upswing following a challenging 2016, according to Preqin research. First quarter asset flows were positive, and 43% of the largest hedge funds attracted new capital, compared with 39% that saw outflows.

Preqin said the renewed interest in hedge funds was driving Billion Dollar Club growth and may help to combat industrywide redemptions, as well as highlight the positive performance hedge funds have experienced since March 2016 and bolster the club’s influence within the industry.


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