The institutionalization of the hedge fund industry and the mountains of cash that came with it are leading more managers to limit inflows, close funds or return money to investors.
Far from being upset with these moves, chief investment officers of pension funds, endowments, foundations and sovereign wealth funds are reassured that their hedge fund managers are capping assets to preserve their ability to generate returns.
Some big, institutionally oriented hedge fund managers, such as The Baupost Group LLC, Third Point LLC and Highfields Capital Management LP, have announced they will be returning money to investors at the end of the year.
But observers said those firms are outliers. More large or strategy-constrained hedge fund managers are either closing their funds to new capital, allowing inflows only from existing clients, or accepting assets from new clients solely to replace redemptions.
Among the institutional hedge fund firms sources said have done soft or hard closes for some of their hedge fund strategies, or intend to do so soon, are:
- Cevian Capital, Corvex Management LP, JANA Partners LLC and Senator Investment Group LP for event-driven strategies;
- Steadfast Capital Management LP, Visium Asset Management LP, Scopia Capital Management LLC and Emerging Sovereign Group LLC for equity long/short;
- BlueCrest Capital Management LP, Graham Capital Management LP and Discovery Capital Management LLC, global macro;
- Bracebridge Capital LLC and Capula Investment Management LLP, market neutral; and
- D.E. Shaw Group and CQS (U.K.) LLP for multistrategy.
“A lot of these hedge fund guys are being forced to deal with these issues for the first time because of institutional investors. The new client base requires a very different way of managing the firm and its investment capacity,” said Damien Loveday, global head of hedge fund research in the London office of Towers Watson & Co.
“No one should be surprised that this is happening. It's symptomatic of what's becoming an increasingly institutional market,” Mr. Loveday said.
“We've seen a lot of soft closes,” he said, because “a lot of managers have reached capacity and are in the enviable position of only needing to accept replacement capital.”