Inside the elegant Breakers Palm Beach resort, Bobby Jain made his multibillion-dollar pitch. His audience: the Abu Dhabi Investment Authority, steward of one of the world’s great petro-fortunes and, to Jain, a perfect client for his new hedge fund.
His vision — laid out in the hotel’s seafood restaurant — was ambitious, even unprecedented. He would hatch a giant, fully formed hedge fund that would trade a half-dozen strategies and employ hundreds of people globally from day one. It required quickly finding gifted traders amid an expensive talent war, building complex infrastructure over months and raising enough investor money to pay for it.
Failing to achieve even one of those lofty targets could tank the whole thing before it ever got started. Even Jain has likened the maneuver to landing three airplanes at once.
Many investors sat on the sidelines, skeptical of the deviation from the typical hedge fund playbook of starting small and building from there. While Jain initially set out to hit a record of as much as $10 billion, he later halved that goal.
But Jain, a onetime acolyte of Millennium Management founder Izzy Englander, won votes of confidence from key investors including the Middle Eastern sovereign wealth fund, which ultimately handed him about $1 billion. He raised $5.3 billion in total, the biggest launch since ExodusPoint Capital Management’s record $8 billion debut in 2018.
Interviews with about two dozen people with knowledge of Jain’s fundraising effort give an inside look into how the former Millennium co-chief investment officer pulled off one of the biggest-ever hedge fund launches earlier this month. It took a charm offensive with sweeteners like fee breaks just to reach his pared-down goal — showing how investors’ appetite for multistrategy hedge funds has plunged amid middling performance, long lockups and rising costs at other funds.
Getting investors on board was just the first step. What follows will test Jain, 53, as never before.
“There are a lot of moving parts, and this hasn’t been done before with this level of portfolio managers across multiple asset classes and strategies,” said Jon Caplis, founder of hedge fund research firm PivotalPath. “Clearly, a lot of thought and capital has been put into this launch. Still, the first few months will be closely watched.”
Clients who did back the firm say their investment is ultimately a bet on Jain, who helped Millennium push into new strategies and develop its central risk book. Now, he must prove he can deliver Millennium-like results without the resources of one of the world’s largest hedge funds.
Even in the best of times, fundraising and hiring for a new hedge fund are challenging. But this is one of the toughest climates in years. Potential clients have less cash on hand due to a prolonged deal drought that has crimped private equity payouts, and hedge funds are vying for scarce talent.
Moreover, Jain’s vision is more ambitious than most other debuts — and he’s under a brighter spotlight. The firm, Jain and the Abu Dhabi Investment Authority declined to comment.
Complex task
Jain — who, along with other employees, is kicking in $200 million — has told his investors that starting off big is the most efficient route to building a multistrategy fund.
If a hedge fund bolts on strategies over time, it can duplicate systems, manpower and expenses, his thinking goes. Jain has concluded that his firm can avoid those inefficiencies by setting up a central operating system that’s already prepared for all of its strategies. He’s hoping his fully built-out firm will be able to add assets and talent in the future without incurring substantial operating costs, those familiar with Jain’s thinking said.
“We are building a single, cross-asset, modern operating platform — a rare feat in the industry,” Jain wrote in an investor document seen by Bloomberg. “While this is more intensive at launch, it avoids the inherent challenges, complexity and cost apparent in a sequential build.”
Jain Global is offering a hedge-fund smorgasbord with more than 40 portfolio managers: It will delve into macroeconomic themes and arbitrage strategies and trade not only stocks and credit instruments, but also physical commodities. It will also explore private credit, such as synthetic risk transfers that take exposure off banks’ balance sheets.
In perhaps its most complex task, Jain is building a computer-driven investing business.
“It’s really tough to start a new quant business,” Bartt Kellermann, founder of the Battle of the Quants conference, said in an interview. “You need three main ingredients, and they’re all expensive: the hardware, the data and the talent.”
Jain’s firm will meld two approaches as it builds its own quant unit. Traders will get paid based on how much profit each one generates, as those who work in independent pods do in firms like Millennium. At the same time, they’ll work together on models and share infrastructure, in the manner of a more collaborative firm such as D.E. Shaw.
While Jain Global expects every business to broadly contribute to returns in line with its expected allocation breakdown right away, some investors say they expect it could take years for the quant unit to carry its weight. The firm hasn’t given clients performance targets, but some investors say they’re hoping to see returns of at least 10% in its first full year.
Fee discounts
Jain concedes the difficulty of executing a complex launch, and has offered sizable fee discounts to make up for the risk, according to people familiar with his thinking. Clients also received what’s known as future capacity — if they like what they see, they can invest more later. And Jain granted them the option to participate in potential future investments alongside his firm.
Some clients appreciated the firm’s more investor-friendly legal provisions – and its attractive liquidity terms. After Jain Global taps an investor’s cash, they can get the money back in three years, versus as many as five years at multistrat rivals.
Despite the reassurances, Jain’s debut has invoked memories of ExodusPoint. Launched about six years ago by fellow Millennium alumnus Michael Gelband, that firm is still struggling to get its quant and equity businesses off the ground and has posted mostly mediocre returns despite gathering $8 billion at its inception.
Leery of an underwhelming performance, multiple investors say they plan to stay on the sidelines for at least a year until Jain shows he can deliver. Some commented on the absence of high-profile star traders known for their track records at rival shops. Jain is intentionally eschewing massive payouts for such talent, which would get passed onto investors.
Other backers who met the firm’s hires said they were impressed after Jain threw open his doors and gave them broad access to his portfolio managers and business heads, as many new funds do.
Syril Pathmanathan, who ran D.E. Shaw’s synthetic risk transfer portfolio, is building Jain’s SRT unit. Heading the quant business are David Willmor and Peter Bolland, who worked together at one of Schonfeld Strategic Advisors’ most successful external pods
On the fundamental equities team, some portfolio managers may get a cut of profits from the firm’s so-called center book, where the firm amplifies some bets. Millennium and Citadel, by contrast, keep those profits for themselves. Jain, like some peers, won’t defer compensation.
