The Hedge Fund HOT 100 2014

 

20 Fir Tree Partners
The fastest growing of America’s 50 largest hedge fund firms is expanding into Europe by appointing Peter Calabro to look for opportunities there. His background is in high yield and distressed, so it is expected that his ideas will filter into the flagship Fir Tree Value Fund, the vehicle for most of Fir Tree Partners’ recent growth and which has an opportunistic value mandate.
19 Event Driven
A more favourable environment for Event Driven strategies is emerging in 2014. M&A activity is currently running at a third of normal levels which should pick up with growing business confidence, financing remains relatively cheap, and corporates are finding it cheaper to buy than build, which typically has a longer payback time. Net investor demand for ED is up to 49% in this year’s Annual Hedge Fund Investor Survey from Credit Suisse, versus 30% in 2013. Activism is getting a lot of institutional investor attention according to their investment consultants.
18 Paulson Comes Back
John Paulson posted gains in 2013 ranging from 18 percent to 63 percent across his range of funds, in the process netting clients $2.6 billion, according to LCH Investments. This year there has been more of the same: the Paulson Advantage fund is up 8.4%, Advantage Plus is up 13 percent this year, the PFR Gold Fund up 40% for the year, Paulson Partners Enhanced fund is up 8.8%, Paulson Partners, an unlevered merger-arbitrage fund, is up 5.3%, the Credit Opportunities fund 8.8%, and Paulson Recovery is up 5.9% for the year to date. In the Absolute Return Awards, Paulson & Co picked up three awards: Paulson Recovery Fund was the Event Driven Award winner (+65.11% in 2013) Paulson International won the Arbitrage & Convertibles Award   (+15.83% in 2013) and the firm was Management Firm of the Year. Use “hedge fund” as search term on Google and the first named management firm that comes up is…Paulson & Co.
17 Hybrid PE/Hedge Funds
A number of hedge funds are targeting investments in less liquid assets as they search for alpha. In an effort to more closely align structure with strategy such managers are introducing fund structures with longer lock-ups that share characteristics of both hedge funds and private equity funds. The term can be 1,2, or 3 years. The drawdown capital approach can be combined with subscribed capital. On the demand side, the Credit Suisse Hedge Fund Investor Survey showed that Hybrid PE vehicles are favoured by 18% of investors.
16 Outsourced Cap Intro
Hedge fund cap intro programs used to be the preserve of investment banks – no longer. IBs still run their events but they have been augmented by independently provided events for investors – Brighton House Associates, Battle of the Quants, NordicHedge, and, the daddy of them, Jane Halsey’s Roundtable Forum.
15 RK Capital Management
It is hard to keep metals hedge fund managers Red Kite out of the news (see entry #66). In 2013 they span out Orion Mine Finance, and took on new Head of Research Michael Jansen from JP Morgan. The long-only Metals Fund was up over 50% last year on the back of taking a more positive view on copper in May/June through physical inventory, copper spreads and forward purchases. The broader Compass and Prospect funds were up double-digits last year, as they were in 2012.
14 Direct Lending
The 6th Annual Hedge Fund Investor Survey from Credit Suisse showed an increase in appetite from investors for direct lending – 20% of investors are looking to increase allocations/begin allocating. US endowments, having had experience in the strategy domestically and in Europe, are now actively seeking to participate in direct lending in Asia for secular reasons (not cyclical). For the European version of the strategy consultants propose firms like Park Square, Hayfin and Capula.
13 Senvest Partners
Richard Mashaal and Brian Gonick run $1bn RIMA Senvest Management with a long term perspective. They are able to do so because 60% of the AUM is family money and because they have always had an approach to investing something like private equity. That is, a multiple year holding period and the investments must have the potential for outsize gains. The portfolio is concentrated and there is a focus on small and mid-cap names. Last year the $600m Senvest Partners, their L/S equity fund, was up 79.3%, and is up 6.79% YTD in 2014.
12 Point72 Asset Management (formerly SAC )
The transformation of SAC into a family office called Point72 Asset Management has given former employees a chance to spread their own wings – Carl Vine has set up Port Meadow, BlueCrest has hired Alidod Shiribekov, Lia Forcina, oil and gas manager Nicholas O’Grady, and energy analyst Eugene Lipovetsky. Carmignac Gestion Group has hired Muhammad Yesilhark and his European equities team (Saiyid Hamid and Huseyin Yasar). Millennium Management has hired a couple of teams from SAC – John Levavasseur’s team and the team of quant manager Andres Anker analysts. Balyasny Asset Management and Moore Capital Management have also picked up whole teams from SAC.
11 100 Women in Hedge Funds
The Duchess of Cambridge was the guest of honour at the 100 Women in Hedge Funds (100WHF) philanthropic initiatives reception dinner last year at the Kensington Palace State Apartments. The dinner was in aid of the charity Action on Addiction, of which she is patron. Her Royal Highness is also a patron of 100WHF. Action on Addiction is involved in tackling addiction through research, prevention, treatment, professional education and family support. Guests at the glamorous event reportedly paid up to £60,000 for a table. 100WHF have done well with their patronage (The Duke of Cambridge and Prince Harry are also patrons of 100 Women in Hedge Funds’ philanthropic initiatives), but this was one of the Duchess’ her first public appearances since the birth of her son, which showed true commitment on her side.

 

 

 

10 Platforms
On both sides of the Atlantic a key word of the moment is platforms. In-house distribution capability of (even large) hedge funds cannot cope with the marketing and client support requirements of absolute return mutual funds and UCITS. So large, national and multi-national wealth management platforms are stepping in to distribute product – think of the wire houses and big regional banks in the US, and Schroders, Deustche Bank, Merrill Lynch and Morgan Stanley’s FundLogic.
9 Long-Only Product
One of the surprises of the last year has been the revelation that the larger hedge fund groups have so much of their AUM in long-only funds.   A recent survey showed that the large hedge fund groups, with AUM of $5bn and more, have 47% of their AUM in long only. Regionally, the trend for running long-only mandates is most common among the European managers. Almost two thirds run a long only vehicle, compared to 38% of US-based managers.   The multi-year expectation is that hedge fund groups will take market share in long-only as they build brands and distribution capability.
8 HNWIs Are Coming Back
According to a global survey by Preqin, an increase in the proportion of capital coming from family offices was witnessed by hedge fund managers in all regions; 55% of Europe-based managers and 51% of North America-based managers saw an increase, while 36% of Asia-Pacific-based managers did so. Preqin’s Hedge Fund Investor Profiles* database shows that the mean current allocation to hedge funds among family offices increased from 16.6% of total assets in December 2012 to 19.5% in December 2013.
7 Fee Pressures
“Demanding 2 and 20 makes investors sceptical,” says Hedge Fund Research’s Ken Heinz. Not the least of the arguments arises from the availability of retail versions of hedge fund strategies. A HF management company that runs hedge funds and ‘40 Act Funds has to be prepared to justify why the hedge fund clients are paying a performance fee and the investors in the ’40 Act funds aren’t. In the 2013 E&Y Hedge Fund Survey the most common reason given for investors not increasing their allocations to hedge funds was fees.
6 Retail Market Access To Hedge Funds
The hedge fund industry is co-opting existing distribution channels for their onshore version funds (40 Act funds and UCITS). Total assets under management in alternative mutual funds, including non-traditional bond funds, surged to $255 billion last year according to Morningstar. By some estimates, assets in alternative mutual funds will grow to represent 13 percent of all mutual fund assets in a few years, according to a report by Fortigent. Cerulli Associates expects that the market share of alternative mutual funds will double in 2 years and more than triple in 5 years.
5 Calpers’ Absolute Return Strategies (ARS)
Calpers recently reviewed its Absolute Return Strategies program, and is looking to the next phase, having successfully built a team structure organized around strategy expertise. The next step is to bring in-house some of the capabilities bought externally up to this point. Operational risk assessment and due diligence capabilities are going to be built through a staff expansion from 5 to 14 investment professionals during the current fiscal year. The incremental resources required in the 2013-2014 budget for increasing Calpers staff will be offset by reduction of fees to advisors and Fund of Hedge Fund (FoHF) managers.
4 Returning Investor’s Money
At the turn of the year at least five big hedge fund firms gave money back to their investors. David Tepper’s Appaloosa Management returned around $2bn from his Palomino fund, Seth Klarman’s Baupost Group returned about $4 billion to investors, Dan Loeb gave back $1.4bn to investors in Third Point, investors in Seth Klarman’s Baupost Group got back $4bn, Highfields Capital gave back around 10% of its total capital of $13bn, Alan Fournier’s Pennant Capital Management returned $325 million to clients. The action says “we will have difficulty maintaining our returns with this much capital,” and as a consequence allocations to medium-sized managers may accelerate relative to the larger managers for the first time since the Credit Crunch.
3 AQR Capital Management
AQR increased its hedge fund assets by 47.29% in 2013 to $29.90 billion, but equally impressive is what it is achieving in mutual funds. AQR Capital Management launched its first mutual fund in January 2009, and AQR Funds, the mutual fund division, amounts to over $13bn in AUM. Alternative mutual funds on offer at AQR include hedge fund strategies such as leveraged managed futures funds, diversified and multi-strategy arbitrage funds and long-short equity funds. AQR has made such a success of alternative mutual funds that its $1.5bn multi-strategy arbitrage fund and its $2.6bn diversified arbitrage fund are closed.
2 Finisterre Capital
Paul Crean’s $1.75bn Finisterre Capital runs a range of emerging market absolute return funds. Emerging markets have not been flavour of the month, but onshore absolute return funds have been. The EU’s Solvency II capital rules for insurers, due to come into force in 2016, will require companies to set aside more capital when investing in hedge funds that are registered offshore centres like the Cayman Islands and not regulated by the EU. In the middle of last year a UK insurance client of Finisterre was set to pull its investment. So in October Finisterre Capital launched a UCITS-compliant version of one of its three funds – the Finisterre Emerging Market Debt Fund had $59m AUM at the end of February with fees of 1 ½ and 15% and no lock up. The offshore Finisterre Global Opportunity Fund has fees of 2 and 20% and a lock up of a year. “Onshore for Europe” is the theme.
1 Blackstone Alternative Asset Management
Amongst the TOP 20 fund of hedge fund groups only three FoFs grew AUM at 20% or more last year. Blackstone Alternatives, at $54bn, is bigger than the other two growthiest FoF companies put together. It is amazing that such a large manager of hedge funds is able to grow at 20% p.a. when a third of the peer group shrank in assets last year. Blackstone is emblematic of the fact that, like single managers, the biggest funds of hedge fund groups are still growing when medium and small sized funds are not.

 

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