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Special report: hedge funds

Hedge fund assets increase 18.4% to $1.338 trillion

P&I survey shows more firms reporting growth for the second year in a row

Donald A. Steinbrugge said the concentration of assets among the largest managers continues.

Hedge funds with an institutional orientation produced exceptionally strong net asset growth of 18.4% in the year ended June 30.

Aggregate assets managed worldwide in single and multistrategy hedge funds by the 113 firms in Pensions & Investments' universe totaled $1.338 trillion as of June 30. By comparison, net aggregate asset growth was 3.1% as of the same date a year earlier and 5.3% in the year ended June 30, 2016.

For the second year in a row, more hedge fund managers and hedge funds-of-funds firms reported asset growth rather than declines or flat levels in response to P&I's ninth-annual survey.

Nearly half — 48% — of the managers reported growth in assets managed worldwide in hedge funds in the 12 months ended June 30. Asset declines were experienced by 26% of respondents, while 2% of firms said AUM was flat and 24% were new to P&I's survey.

In the prior year's survey, 46% of managers said AUM had grown, 4% were flat, 29% were down and 21% were new to the survey.

P&I annually surveys institutionally oriented firms to collect data about worldwide asset managed in hedge funds and funds of funds. The universe of hedge funds that responds to the survey changes each year, which might affect year-to-year comparisons.

Data for hedge funds that do not respond to P&I's survey are collected from industry sources or from the firm's ADV Investment Adviser Disclosure forms filed with the U.S. Securities and Exchange Commission.

The span of changes among individual hedge fund managers was broad.

The largest gain from pure asset growth in P&I's hedge fund manager universe — 76.1% — came from 73rd-ranked LaFrancaise Investment Solutions, which now manages $3.7 billion.

Growth for the Paris-based firm in the year ended June 30 was driven by flows into its actively managed multistrategy hedge fund, which relies on a risk-premium-based strategy, said Giselle Comissiong, marketing and communication director, in an email. The fund's portfolio managers invest both long and short, and employ derivatives and arbitrage methods to produce absolute returns.

London-based Brevan Howard Asset Management LLP suffered the largest decline in the year ended June 30, with AUM falling 34.8% to $7.74 billion. The firm's assets have been declining steadily from a peak of $39.7 billion as of June 30, 2013, according to the firm's responses to P&I's surveys.

When it comes to hedge funds of funds, the managers that completed P&I's survey also experienced a reasonably strong AUM growth in year ended June 30 with aggregate assets of $435.2 billion managed worldwide, up 6.2% from the year before.

As of June 30, 53% of hedge funds of funds reported net asset growth in the prior 12 months compared with 61% as of the same date in 2017 and 21% in 2016. Asset declines were suffered by 37% of funds of funds in the year ended June 30 vs. 29% the prior year and 61% in the year ended June 30, 2016. New managers accounted for the remainder in each of the three years.

Lyxor Asset Management SAS, Paris, experienced the highest AUM growth for the second year in a row — 20.9% — to $15.4 billion. The firm's AUM grew 41.1% in the year ended June 30, 2017.

Assets of PAAMCO Prisma Holdings LLC, Irvine, Calif., declined 23.2% in the year ended June 30 to $13.7 billion, the largest drop in P&I's hedge funds-of-funds universe.

Concentration grows

Results of P&I's annual survey confirmed the ongoing trend of investment concentration among the largest managers, said Donald A. Steinbrugge, CEO of Agecroft Partners LLC, a Richmond, Va.-based consulting and third-party marketing firm specializing in hedge funds and other alternative investments.

Assets managed worldwide by the 10 largest hedge funds totaled $538.9 billion as of June 30, accounting for about 40% of assets in the P&I universe while the $874.6 billion of assets under management by the top 25 hedge funds represented 65.3% of the total.

The 10 largest hedge funds-of-funds managers ran a total of $231.6 billion as of June 30, approximately 67% of the 2018 universe.

Mr. Steinbrugge noted that 20 of the 25 largest hedge funds saw an increase in AUM during the year ended June 30, ranging from 45.5% to $34.8 billion for eighth-ranked Marshall Wace LLP, London, to 2.7% to $35.3 for Millennium Management LLC, New York.

"This is a very strong indication that the largest hedge funds continue to pick up the most flows," Mr. Steinbrugge said.

Top 5 stays the same

The ranking of the five largest managers of hedge funds worldwide as of June 30 was the same as it was the previous year:

Bridgewater Associates LP managed $132.8 billion, up 7.9% from the prior year.

  • AQR Capital Management LLC's assets rose 9.2% to $83.7 billion.
  • Man Group PLC ran $59.1 billion, up 11.3%.
  • Renaissance Technologies LLC's AUM was up 17.3% to $57 billion.
  • Two Sigma Investments LP/Two Sigma Advisers LP saw assets increase 9.6% to $38.8 billion.

Mr. Steinbrugge also noted the predominance of quantitative managers at the top of P&I's hedge fund ranking — the five largest managers all run quantitative investment strategies — and stressed that the healthy AUM growth rate for each manager is "indicative that a lot of money still is going into quant approaches."

Mr. Steinbrugge said he also was struck by the number of large hedge fund managers that have expanded their fund range beyond their original strategies, by both organic growth and acquisition, including AQR, Man Group, Two Sigma, Millennium, Citadel LLC and D.E. Shaw Group.

"A number of the larger hedge fund managers have evolved into multiasset hedge fund managers. Once you build the necessary infrastructure and create investment teams, it doesn't take much to add additional funds," he said.

The first four spots in P&I's ranking of hedge funds-of-funds managers by assets managed worldwide remained static, with Blackstone Alternative Asset Management firmly dominating with $77.4 billion, or 17.8% of the total universe. BAAM's assets were up 6.8% in the year ended June 30.

Next in line was UBS Hedge Fund Solutions, with AUM up 12.7% in the year ended June 30 to $40.8 billion; Goldman Sachs Asset Management LP, up 7.3% to $31.3 billion; and Grosvenor Capital Management LP with an asset gain of 5.2% to $27.3 billion.

Morgan Stanley (MS) Investment Management rose into the fifth position despite a slight AUM decline of 0.6% to $23.2 billion.

Morgan Stanley replaced EnTrust Permal Management LLC, which dropped to the seventh position with a 15.3% decline to $20.7 billion in hedge funds of funds worldwide.

Mercer Investment Management Inc. experienced the second-largest growth among hedge funds-of-funds managers, with AUM increasing 16.3% to $7.6 billion, placing the firm 19th.

The firm's growth was driven by broad demand from institutional investors globally, said David J. McMillan, a partner and Mercer's St. Louis-based chief investment officer for hedge funds.

Growth in the U.K. and Canada primarily was from corporate defined benefit plans while new inflows in the U.S. were from both corporate defined benefit plans and non-profit entities, he said. A fair number of Mercer's new mandates in the year ended June 30 were the result of "manager shuffling" as existing hedge funds-of-funds investors sought to upgrade their portfolios, Mr. McMillan said, adding "net-net, we're gaining some of that business."

But many of Mercer's new clients are first-time hedge funds-of-funds investors that are realigning their strategic asset allocations to diversify away equity and interest-rate risk in the face of the expected end of the nine-year bull market, Mr. McMillan said. "We're not surprised by the demand we're seeing from institutional investors for hedge funds-of-funds portfolios as a portfolio diversifier. Many investors are trying to build all-weather portfolios and hedge funds are key to that defense," he said.

The largest managers of hedge funds
Ranked by discretionary assets managed in hedge funds worldwide, in millions, as of June 30, 2018, unless otherwise noted. For a printable version of this chart, click here.
RankManagerAssetsChange from 2017
1 Bridgewater Associates$132,7567.9%
2AQR Capital Mgmt.$83,7009.2%
3Man Group$59,10011.3%
4 Renaissance Technologies$57,00017.3%
5Two Sigma Inv./Two Sigma Advisers$38,8009.6%
6Millennium Mgmt.$35,3142.7%
7Elliott Management$35,0007.0%
8Marshall Wace$34,80045.5%
9Davidson Kempner Capital Mgmt.$31,40015.9%
10Baupost Group$31,000-0.3%
13 BlackRock (BLK)$29,88230.3%
14D. E. Shaw Group$28,7904.7%
15Winton Capital Mgmt.$25,844-6.2%
16Farallon Capital Mgmt.$25,3006.3%
17Viking Global Investors2$25,00024.1%
18Canyon Capital3$24,50016.7%
12TCI Fund Mgmt.$19,80024.9%
19King Street Capital Mgmt.$18,8000.0%
21York Capital Mgmt.$18,60011.4%
22Och-Ziff Capital Mgmt.$18,200-17.3%
23Third Point$17,6537.0%
24Element Capital Mgmt.3$17,500N/A
25Capula Investment Mgmt.$17,17115.2%
26Anchorage Capital Group$16,500-1.8%
27Cevian Capital$15,887-4.5%
28Appaloosa Mgmt.$15,100-11.2%
29Graham Capital Mgmt.$14,8835.7%
30Wellington Alt. Investments$14,165N/A
31Point72 Asset Mgmt.$13,000N/A
32Magnetar Capital$12,900-2.3%
33GoldenTree Asset Mgmt.$12,7145.9%
34Angelo, Gordon & Co.$12,7002.4%
35Nephila Capital$12,20016.7%
36Highfields Capital Mgmt.$12,100-6.2%
37Goldman Sachs Asset Mgmt.$11,115-0.8%
38BlueMountain Capital Mgmt.$11,000-22.5%
39Pharo Management3$10,000N/A
40Senator Investment Group$8,780-0.2%
41Carlson Capital$8,720-4.2%
43Tiger Global Mgmt.$8,50021.4%
44Pershing Square2$8,314-20.1%
45Systematica Investments$8,300N/A
46Brevan Howard$7,740-34.8%
47Aspect Capital$7,65621.8%
48Taconic Capital Advisors1$7,10018.3%
49Waterfall Asset Mgmt.$6,6653.4%
50Cheyne Capital$6,59412.2%
51Varde Partners$6,582N/A
52Steadfast Capital Mgmt.$6,400N/A
53Solus Alternative Asset Mgmt.$6,145-3.0%
54PDT Partners$6,00020.0%
55Capstone Investment Advisors$5,81644.7%
56Graticule Asset Mgmt.Asia$5,700N/A
57Ellington Mgmt. Group$5,600N/A
58Greenlight Capital3$5,500-21.4%
59Contrarian Capital Mgmt.$5,27522.7%
61J.P. Morgan Asset Mgmt.$5,139-6.6%
62Eminence Capital2$5,0005.0%
63Autonomy Capital$4,700-2.1%
64Paloma Partners$4,600-13.2%
65Samlyn Capital$4,5000.0%
66Brigade Capital Mgmt.$4,486N/A
67Tilden Park Capital Mgmt.$4,2894.0%
68Napier Park Global Capital$4,24627.4%
69UBS O'Connor$4,205-17.8%
70HG Vora Capital Mgmt.$4,10028.1%
71Greywolf Capital Mgmt.$3,872N/A
72 Gramercy$3,751-3.4%
73La Francaise Inv. Solutions$3,70676.1%
74Empyrean Capital Partners$3,4808.8%
75Garda Capital Partners$3,46313.7%
76Highline Capital Mgmt.$3,078-14.9%
77Kepos Capital$3,000-3.2%
78Acadian Asset Mgmt.$2,979-3.8%
79Halcyon Capital Mgmt.$2,9007.4%
80LibreMax Capital$2,90026.1%
81TIG Advisors$2,900N/A
82Hudson Bay Capital Mgmt.$2,80016.7%
83Cartica Mgmt.$2,784N/A
84Perella Weinberg Partners1$2,768113.4%
85Ionic Capital Mgmt.$2,7008.0%
86Long Pond Capital$2,70020.8%
87Hildene Capital Mgmt.$2,626N/A
88Blue Harbour Group$2,584N/A
89EJF Capital$2,458N/A
90Wexford Capital$2,400N/A
93Shelter Growth Capital Partners$2,32259.2%
91DW Partners$2,300-25.8%
92MidOcean Credit Partners$2,300N/A
94400 Capital Mgmt.$2,00536.6%
95Strategic Value Partners$1,98810.4%
96Light Sky Macro$1,800N/A
97Quest Partners$1,683N/A
98Tricadia Capital Mgmt.$1,680N/A
60ZAIS Group$1,56825.4%
99Snow Lake Capital$1,500N/A
100Omni Partners4$1,44020.9%
101Gotham Asset Mgmt.$1,400-17.6%
102Saba Capital Mgmt.$1,400-6.7%
103Kingdon Capital Mgmt.$1,317-23.3%
104Light Street Capital$1,30539.9%
105Tourbillon Capital Partners$1,200N/A
106Argentem Creek Partners$1,125N/A
107Atlantic Investment Mgmt.$1,100-22.0%
108Seer Capital Mgmt.$1,100-3.5%
109Rubric Capital Mgmt.$1,076N/A
110Birch Grove Capital$9464.9%
111Medalist Partners$890N/A
112SECOR Capital Advisors$527N/A
113Haidar Capital Mgmt.$38727.9%
Notes: 1 Data as of July 1, 2018. 2 Data are from a company source, such as a website. 3 Data are from industry sources. 4 2017 hedge fund AUM is restated.
Source: Pensions & Investments survey, unless otherwise noted.