Startup and Lesser Known Hedge Funds Attract Big Money

September 15, 2014

At a time when small hedge funds are struggling to attract investor capital, two new hedge funds started by managers who had worked with hedge firms with strong track records have attracted significant capital in the first half of this year. Hedge fund FinePoint Capital, which started its operations this year, has raised $2 billion and another hedge fund Three Bays Capital, which opened in January, has netted $1.2 billion in investor capital. While FinePoint Capital is run by Herb Wagner, who was a portfolio manager at hedge fund Baupost Group, Three Bays Capital is managed by Matthew Sidman, who worked as investment manager for nearly 15 years at hedge fund Highfields Capital Management.

Hedge Fund Hutchin Hill Among Prime Beneficiaries

Besides the two startup funds, a few other little known hedge funds attracted big money this year. Among them is the New York-based fund Hutchin Hill which attracted net inflow of $1.2 billion in the first half of the year. The multi strategy fund is run by 47 year old hedge fund manager Neil Chriss and now has $2.5 billion under management. It has generated annual returns of 12 percent since its inception in 2008. Hutchin Hill, which employs approximately 60 investment analysts, uses five main strategies including one that makes trading decisions based on quantitative models.

Other lesser known hedge funds that witnessed a sharp increase in assets include P. Schoenfeld Asset Management and Solus Alternative Asset Management.  Total assets of P. Schoenfeld have climbed to $4.1 billion helped by $1 billion in new capital, while hedge fund Solus now has $4.6 billion in management after attracting fresh investments of $1.25 billion this year.

Among established hedge funds, Citadel, Och-Ziff (OZM) Capital Management and Millennium Management pulled in the biggest chunks of money. Citadel attracted the most capital among hedge funds in the first half as investors gave it $3.9 billion in fresh money. Its assets have now increased to $22 billion. Och-Ziff, which has approximately $46 billion under management, received $3 billion in fresh commitments while the $24 billion hedge fund Millennium witnessed a net inflow of $2.6 billion during the first six months this year.

In an effort to take advantage of the current favorable capital raising environment for established hedge funds, well known and widely followed activist hedge fund manager Dan Loeb has reversed his earlier decision to close to new investments. His fund, Third Point LLC, had been closed to new investments since 2011 and returned about 10 percent of investor capital last year. But it recently told investors that it will open for a brief period to accept more money in its flagship fund.

Large Funds Continue To Attract Bulk of New Capital

According to data provided by research firm Hedge Fund Research Inc, hedge funds holding assets in excess of $1 billion continue to account for a vast majority of new capital allocation. The data showed hedge fund investors allocated a record $30.5 billion to various hedge fund firms in the quarter ended June 30. Of that, only about $750 million or 2 percent went to funds with less than $1 billion in assets.

Commenting on the total dominance of large funds, Adam Blitz, who is the CEO of Evanston Capital Management, says, “You are getting some big checks coming in to a fairly small universe of brand-name managers who want to grow and are on the approved list of hedge-fund consultants.”

Relevance to Job Market

The overall picture for the hedge fund job market is still lackluster despite record breaking capital inflow into the industry. With a few funds lapping up pretty much everything in new capital allocation, it is likely that a large number of funds have limited flexibility on operational expense management. In addition, most hedge fund managers are expressing discomfort over the current market valuation which suggests limited investment opportunities. Hedge funds are likely to go easy on hiring under such an environment,.

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