95 managers in $1 trillion club

Hedge fund and fund-of-funds firms tracked by Pensions & Investments managed more than $1 trillion in worldwide assets at the end of 2009.

That's nearly half of the $2.2 trillion that Hedge Fund Research Inc., Chicago, estimated made up the hedge fund industry as of Dec. 31.

Using a combination of direct surveys with money managers, interviews with fund company executives, industry sources and — for the first time — regulatory filings, P&I compiled a ranking of 95 companies managing at least $1 billion in combined hedge fund and fund-of-fund assets from clients worldwide.

About 60% or $611 billion of the $1.01 trillion total from P&I's ranking was managed in single- and multistrategy hedge funds with the $401 billion balance managed in funds of funds.

The 25 largest companies, all managing at least $17 billion, ran $654 billion or 65% of total hedge fund and fund-of-funds assets in P&I's universe. The top companies managed $410 billion in single- and multistrategy hedge funds and $243 billion in funds of funds.

(A full list of hedge fund/fund-of-fund managers with at least $1 billion of combined assets is available at http://www.pionline.com/wwmanagers.)

The largest manager was Bridgewater Associates Inc., which managed $43.6 billion in multistrategy hedge fund assets as of Dec. 31, followed by Man Group, with $25.3 billion in direct hedge fund assets and $17.1 billion in funds of funds. BlackRock Inc. with $23.7 billion managed in direct assets and $16.6 billion in funds of funds, occupied third place.

BlackRock is a relative newcomer to the cadre of large hedge fund managers, pushed by the 2009 acquisition of Barclays Global Investors. BGI reported hedge fund assets of $17 billion the previous year, while BlackRock's hedge fund assets totaled $8.2 billion. BlackRock spokeswoman Lauren Trengrove warned that a precise comparison of 2008 with 2009 wasn't possible because BlackRock recategorized a number of investment strategies when it integrated BGI into the company.

Still, industry sources said BlackRock now is a more serious contender in the hedge fund industry, especially for institutional allocations, thanks to the addition of BGI's mostly institutional hedge fund family.

BlackRock also followed an acquisition approach for hedge funds of funds with the acquisition of Quellos Group LLC, which managed $21.9 billion when the deal closed late in 2007.

Donald A. Steinbrugge, managing partner of hedge fund consultant and third-party marketing firm Agecroft Partners LLC, Richmond, Va., noted that the concentration of assets managed by the largest hedge fund and fund-of-funds managers in P&I's ranking reflects what's going on in the broader industry.

Because many hedge fund companies are secretive about assets under management, P&I's list of hedge fund managers is biased toward companies with a significant institutional client base that are willing to share information.

Mr. Steinbrugge estimated about 80% of assets being invested by pension funds and other institutions globally are “going into the biggest hedge funds. There is a significant concentration of assets in the top 10 managers. ... The industry is becoming much more institutionalized than it was 10 years ago (when) a company's brand (name) and distribution capabilities (were) just as important as expected future performance in raising assets.”

Daniel Celeghin, a partner at Casey, Quirk & Associates LLC, Darien, Conn., a consultant to money managers, noted that P&I's top 25 ranking is “an interesting mix” of companies that manage only hedge funds, only funds of funds or a fairly equal mix of both.

Mr. Celeghin divided the largest managers into several camps. U.S-based “hyper-institutional firms” like Bridgewater Associates, BlackRock, Och-Ziff Capital Management Group and Grosvenor Capital Management LP make up one camp, while “pure-play” hedge fund managers — which manage both institutional and high-net-worth assets — make up another camp. Those firms include Paulson & Co. Inc., Soros Fund Management LLC, Farallon Capital Management LLC, Baupost Group LLC, King Street Capital Management LP and Canyon Partners/Canyon Capital Advisors LLC.

Another sector was hedge fund and fund-of-funds managers, mostly based in Europe, with significant assets from clients worldwide: Man Group, HSBC Global Asset, Brevan Howard Asset Management LLP, Union Bancaire Privee, Lyxor Asset Management and BlueCrest Capital Management Ltd.

Yet another group is the diversified financial services companies with large institutional and wealth management businesses and significant hedge fund and fund-of-funds representation: Goldman Sachs Group, UBS Global Asset Management, J.P. Morgan Asset Management and Legg Mason/Permal Asset Management.