Citadel Advisors LLC and Millennium Management LLC said their assets soared ninefold when tallied under a new rule that requires hedge funds to disclose investments financed through borrowings.
Citadel reported $115.2 billion of regulatory assets in a March 30 filing with the Securities and Exchange Commission, compared with $12.6 billion of net assets. Millennium disclosed comparable figures of $119 billion and $13.5 billion as of year-end.
The two firms are among more than 1,200 private fund advisers that have registered this year with the SEC and have begun providing a more comprehensive count on the assets they manage, including those acquired through the use of borrowed money, under rules aimed at curbing systemic financial market risks. The filings suggest the largest funds have returned to the level of leverage used before the financial crisis.
April Emspak, a spokeswoman for New York-based Millennium, and Devon Spurgeon, a spokeswoman for Citadel, both declined to comment.
Under the Dodd-Frank Act, Congress required hedge and buyout funds with assets of $150 million or more to register with the SEC by March 30. It was one of several provisions designed to help regulators control risks to the financial system.
In seeking to adopt a uniform method for determining who met the threshold, regulators instructed firms to count assets that most were excluding from tallies on size, including holdings obtained through loans, short sales and hedging. Traditionally, hedge-fund managers have quoted a net number — comprising investor capital plus investment gains and losses — when disclosing their assets under management.
While some only gave information on their gross assets, 31 of the 50 largest also disclosed their net assets in a separate section known as the client brochure. For these firms, gross assets of $949 billion were more than double their net assets of $422 billion.
That indicates hedge funds might be using as much leverage as they did prior to the 2008 financial crisis. On average, hedge funds held total assets that were double their net capital as recently as 2007, said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a Darien, Connecticut, adviser to asset managers.
Not all of the difference between net and gross assets can be explained by leverage, because the SEC’s gross number also includes proprietary stakes that money managers hold in their own funds as well as assets that don’t get charged a management fee.