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Special Report: Hedge Funds

Gainers finally outpacing losers

More firms win assets than lose in latest survey of managers

Updated with corrections.

In another reversal of fortune — this time for the better — more institutionally oriented hedge fund and hedge fund-of-funds managers saw a rise in assets than those sustaining losses for the year ended June 30.

Despite that bright spot, aggregate assets managed worldwide in single and multistrategy hedge funds by the 113 firms in Pensions & Investments' universe rose 3.1% to $1.241 trillion during the 12-month period, trailing the 5.3% increase of a year earlier.

In a turnabout from the prior year, 46% of hedge fund firms responding to P&I's eighth annual survey reported growth in assets under management. Asset declines were reported by 29% of respondents, while 4% said growth was flat and 21% were new to the survey. In the prior year's survey, 59% of managers had lower AUM while just one-quarter reported increased or flat assets. The balance was firms new to survey.

P&I annually surveys institutionally oriented firms to collect data about worldwide assets managed in hedge funds and funds of funds. Data for hedge fund managers that do not respond to P&I's survey are collected from the firms' ADV Investment Advisor Disclosure forms filed with the Securities and Exchange Commission.

The span of changes was wide. The largest gain — 77.1% — came from 69th-ranked Napier Park Global Capital Ltd., which now has $3.3 billion. The biggest decline — 43.3% — was seen by 61st-ranked Pine River Capital Management LP, which now has $4.6 billion.

When it comes to hedge funds-of-funds managers, a year-to-year comparison of aggregate growth is difficult because the universe of firms responding to the survey dropped to 31 from 44. Assets managed in commingled and customized hedge funds of funds totaled $414 billion as of June 30 vs. $416 billion a year earlier.

Sixty-one percent of the fund-of-funds managers reported asset growth for the year ended June 30, while 29% experienced declines. Three companies were new to the survey universe.

The largest managers of hedge funds
Ranked by discretionary assets managed in hedge funds worldwide, in millions, as of June 30, 2017.
1 Bridgewater Associates$123,000 19.5%
2AQR Capital Mgmt.$76,619 21.6%
3Man Group$53,100 14.7%
4 Renaissance Technologies$48,600 51.9%
5Two Sigma $35,400 28.3%
6Millennium Mgmt.$34,373 3.2%
7Elliott Mgmt.$32,700 13.4%
8Baupost Group$31,100 6.5%
9 BlackRock (BLK)$27,615 -3.4%
10Winton Capital Mgmt.$27,559 -16.6%
11D.E. Shaw Group$27,486 1.7%
12Citadel $27,107 12.9%
13Davidson Kempner Cap. Mgmt.$27,100 7.3%
14Marshall Wace$23,913 4.0%
15Farallon Capital Mgmt.$23,800 13.3%
16Och-Ziff Capital Mgmt.$22,000 -15.7%
17Canyon Capital Advisors2$21,000 47.9%
18Viking Global Investors $20,143 1.8%
19King Street Capital Mgmt.$18,800 -1.1%
20PIMCO$17,352 2.2%
21Appaloosa Mgmt.$17,000 N/A
22Anchorage Capital Group$16,800 7.7%
23York Capital Mgmt.$16,700 -8.7%
24Cevian Capital$16,627 31.8%
25Third Point $16,500 N/A
26TCI Fund Mgmt.$15,854 26.8%
27Capula Investment Mgmt.$14,900 5.7%
28Pershing Square Holdings$14,796 N/A
29BlueMountain Capital Mgmt. $14,200 0.7%
30Graham Capital Mgmt.$14,086 11.2%
31Magnetar Capital$13,200 0.0%
32Highfields Capital Mgmt.$12,900 5.7%
33Fortress Inv. Group$12,868 -5.3%
34Angelo, Gordon & Co.$12,400 2.5%
35GoldenTree Asset Mgmt.$12,010 3.9%
36Brevan Howard Asset Mgmt.$11,873 -38.8%
37Glenview Capital Mgmt.$11,476 21.3%
38Goldman Sachs Asset Mgmt.$11,200 -13.8%
39PointState Capital$10,600 4.0%
40Nephila Capital $10,450 4.7%
41Fir Tree Partners$9,539 -0.6%
42Carlson Capital$9,100 8.9%
43Marathon Asset Mgmt.$8,820 1.4%
44Senator Investment Group$8,800 3.7%
45Greenlight Capital$7,000 -18.6%
46Tiger Global Mgmt.$7,000 18.6%
47CQS4$6,612 9.2%
48Waterfall Asset Mgmt. $6,447 53.5%
49Solus Alternative Asset Mgmt.$6,338 25.8%
50Aspect Capital$6,288 6.5%
51Taconic Capital Advisors$6,000 -3.1%
52Cheyne Capital$5,879 N/A
53Ellington Mgmt. Group$5,500 3.8%
54J.P. Morgan Asset Mgmt.5$5,500 -9.2%
55MKP Capital Mgmt.$5,322 -28.0%
56Paloma Partners$5,300 0.0%
57UBS O'Connor3$5,113 -8.7%
58PDT Partners$5,000 0.0%
59Autonomy Capital$4,800 37.1%
60Eminence Capital$4,763 N/A
61Pine River Capital Mgmt.$4,589 -43.3%
62Samlyn Capital$4,500 -10.0%
63Contrarian Capital Mgmt.$4,300 36.9%
64Tilden Park Capital Mgmt.$4,124 6.8%
65Capstone Investment Advisors$4,019 47.1%
66 Gramercy Funds Mgmt.$3,883 -1.8%
67 Neuberger Berman Group $3,856 N/A
68Highline Capital Mgmt.$3,615 26.6%
69Napier Park Global Capital$3,332 77.1%
70Empyrean Capital Partners$3,200 N/A
71HG Vora Capital Mgmt.$3,200 33.3%
72Valinor Capital Mgmt.$3,200 N/A
73DW Partners$3,100 -24.4%
74Kepos Capital$3,100 40.9%
75Acadian Asset Mgmt.$3,097 51.3%
76Garda Capital Partners $3,046 21.5%
77Hutchin Hill Capital$3,000 -18.9%
78Halcyon Capital Mgmt.$2,700 N/A
79Ionic Capital Mgmt.$2,500 -7.4%
80Ivory Investment Mgmt.$2,500 -16.4%
81Hudson Bay Capital Mgmt.$2,400 -11.1%
82Tricadia Capital Mgmt.$2,400 -22.6%
83LibreMax Capital$2,300 -4.2%
84Long Pond Capital$2,236 N/A
85La Francaise Inv. Solutions$2,104 N/A
86Finisterre Capital $1,953 5.6%
87Structured Portfolio Mgmt.$1,920 -9.4%
88Cadian Capital Mgmt.$1,800 N/A
89Strategic Value Partners3$1,800 20.0%
90Kingdon Capital Mgmt.$1,717 -16.8%
91Gotham Asset Mgmt.$1,700 N/A
92Salient$1,662 -6.7%
93Polygon Global Partners $1,601 N/A
94Saba Capital Mgmt.$1,500 -11.8%
95400 Capital Mgmt.$1,468 -0.5%
96Shelter Growth Cap. Partners$1,442 N/A
97Atlantic Investment Mgmt.$1,411 N/A
98Atreaus Capital Mgmt.$1,400 0.0%
99Three Bays Capital$1,400 -12.5%
100Senvest Mgmt. $1,330 37.0%
101Perella Weinberg Partners1$1,297 15.3%
102Candlewood Investment Group$1,289 N/A
103ZAIS Group $1,250 N/A
104Seer Capital Mgmt.$1,140 -30.1%
105Brenner West Capital Partners$1,120 -14.2%
106Warlander Asset Mgmt.$1,100 N/A
107Highland Capital Mgmt.$955 -10.0%
108LightStreet Capital Mgmt.$933 N/A
109Birch Grove Capital $902 13.2%
110 Martin Currie Inv. Mgmt.$700 N/A
111Omni Partners $492 N/A
112Nut Tree Capital Mgmt.$422 N/A
113Haidar Capital Mgmt.$303 N/A
Notes: 1 Data as of March 31, 2017. 2 Data as of April 1, 2017, from industry sources. 3 Data as of July 1, 2017. 4 CQS' 2017 AUM excludes non-hedge fund assets which were included in the 2016 survey data. 2016 AUM has been restated for comparison. 5 J.P. Morgan's 2017 AUM excludes wealth management assets which were included in the firm's 2016 P&I survey data. 2016 AUM has been restated for comparison.
Source: Pensions & Investments survey, unless noted

In last year's survey, 21% of hedge fund-of-funds firms saw asset gains while 61% reported fewer assets. The range went from an asset increase of 41.1% for Lyxor Asset Management, now with $12.7 billion, to a 20.2% decline for SkyBridge Capital II LLC to $6.5 billion

Big getting bigger

Hedge fund assets managed by the 10 largest managers rose 15.3% to $490 billion, representing 39.6% of the total survey universe. Assets of the 25 largest managers rose 10.9% to $802 billion, accounting for 64.6% of total assets.

When it comes to ranking the top funds in the P&I hedge fund universe, not much changed. The five largest firms managed a total of $337 billion, representing about 11% of worldwide hedge fund industry assets.

"The rich are getting richer," said Donald A. Steinbrugge, founder and CEO of hedge fund third-party marketing specialist Agecroft Partners LLC, Richmond, Va., commenting on the rankings.

The aggregate asset growth of $65 billion by the five "very institutional managers" represents "a very large percentage of net inflows for the entire hedge fund industry in the year ended June 30," Mr. Steinbrugge added.

The top of P&I's 2017 hedge fund chart was unchanged from the prior year.

Bridgewater Associates LP occupied the top spot with $123 billion, a gain of 19.5%, followed by AQR Capital Management LLC with $76.6 billion, up 21.6%; and Man Group PLC with $53.1 billion, up 14.7%.

Renaissance Technologies LLC moved to fourth place from sixth with worldwide hedge fund assets of $48.6 billion, up 51.9% for the year. Two Sigma Investments LLC jumped to No. 5 from 10th place with assets of $35.4 billion, up 28.3%.

Quantitative appetite

Investor preference for quantitatively managed strategies is behind the strong growth of the five top firms, said Stephen L. Nesbitt, CEO of alternative investment consultant Cliffwater LLC, Marina del Rey, Calif.

"Basically, what you're seeing within this space is a move from fundamentally managed strategies, many of which had a bad year in 2016 and saw asset outflows. Quant strategies did comparatively well over the past year and combined with lower fees, were where institutional investors moved some of their assets," Mr. Nesbitt said.

Mr. Steinbrugge agreed. "These quant funds are just vacuuming up industry assets, garnering a growing market share of institutional assets."

Despite the dominance of large quant hedge funds in the upper quarter of P&I's hedge fund ranking, smaller managers also showed strong growth, albeit on a much smaller base.

In addition to Napier Park's growth spurt, other managers with less than $5 billion and 25%-plus growth were:

  • Acadian Asset Management LLC, up 51.3% to $3.1 billion, ranked 75th;
  • Capstone Investment Advisors LLC, up 47.1% to $4 billion, ranked 65th;
  • Autonomy Capital, up 37.1% to $4.8 billion, ranked 59th;
  • Kepos Capital LP up 40.9% to $3.1 billion, ranked 74th;
  • Senvest Management LLC, up 37% to $1.3 billion, ranked 100th;
  • Contrarian Capital Management LLC, up 36.9% to $4.3 billion, ranked 63rd;
  • HG Vora Capital Management LLC, up 33.3% to $3.2 billion, ranked 71st; and
  • Highline Capital Management LP, up 26.6% to $3.6 billion, ranked 68th.

Quantitative specialist Acadian Asset Management, Boston, benefited from the successful launch of its diversified alpha strategy, said Theodore W. Noon, senior vice president and director of the Americas client group. The global fund is cash-long and beta-neutral and "exploits fundamental differences between high- and low-risk companies" he said, by shorting fundamentally weak high-beta stocks and buying attractively priced low-beta stocks.

The strategy leads the fund's portfolio managers to overlooked, often boring companies on the long side, Mr. Noon said, increasing diversification by avoiding crowded hedge fund trades.

The Diversified Alpha Fund attracted $500 million as of June 30. Acadian managed a total of $86.6 billion as of the same date.

HFoF ranks little changed

P&I's 2017 ranking of the largest managers by worldwide hedge fund-of-funds assets also experienced little movement among the industry leaders.

Blackstone Alternative Asset Management was firmly ensconced at the top with $72.5 billion — twice as large as its nearest competitor, UBS Hedge Fund Solutions, which retained second place with $36.2 billion under management. BAAM's assets rose 5.6% and UBS assets were up 5.7% for the year.

Goldman Sachs Asset Management retained third place with an asset gain of 6.3% in the year to $29.2 billion.

Grosvenor Capital Management LLC moved to fourth place from fifth with asset growth of 4.2%, bringing AUM to $25.9 billion, swapping places with EnTrustPermal Management LLC, which experienced an asset decline of 7.3% to $24.4 billion.

The merger of Pacific Alternative Asset Management Co. and KKR Prisma to form PAAMCO Prisma Holdings placed the new entity at No. 8 in P&I's ranking with assets of $17.9 billion, 5.3% lower than the combined 2016 assets of both firms. KKR Prisma ranked 13th in P&I's prior survey with $10.2 billion under management, and PAAMCO ranked 16th with $8.7 billion.

The largest managers of hedge funds of funds
Ranked by discretionary assets managed in hedge funds of funds and customized accounts, worldwide, in millions, as of June 30, 2017.
% of total AUM managed for institutions
1Blackstone Alternative Asset Mgmt. $72,476 5.6%N/A
2UBS Hedge Fund Solutions1$36,213 5.7%N/A
3Goldman Sachs Asset Mgmt.$29,1566.3%N/A
4Grosvenor Capital Mgmt.$25,948 4.2%94.2%
5EnTrustPermal$24,416 -7.3%80.3%
6 Morgan Stanley (MS) Investment Mgmt.$23,327 8.2%41.5%
7 BlackRock (BLK)$21,471 11.8%89.3%
8PAAMCO Prisma2$17,881 -5.2%98.8%
9Man FRM$16,200 36.1%88.0%
10J.P. Morgan Asset Mgmt.4$13,100 8.8%57.3%
11Rock Creek$12,900 11.2%100.0%
12Lyxor Asset Mgmt.3$12,700 41.1%90.0%
13WIllis Towers Watson$11,350 30.7%100.0%
14Aetos Alternatives Mgmt.$10,886 6.0%99.3%
15Pictet Alternative Advisors$9,925 N/A20.3%
16Mesirow Advanced Strategies$9,830 -15.3%95.1%
17Lighthouse Investment Partners$9,443 13.8%84.0%
18 Mercer$6,565 27.4%89.6%
19 SkyBridge Capital$6,485 -20.2%32.3%
20 K2 Advisors5$6,466 -4.0%62.5%
21Silver Creek Capital$5,330 -7.0%N/A
22 Corbin Capital Partners$4,810 13.4%68.8%
23 Neuberger Berman Group$4,678 N/A86.9%
24Evanston Capital Mgmt.$4,477 -10.0%75.9%
25Magnitude Capital$3,941 4.1%77.0%
26 Aon Hewitt $3,782 N/A100.0%
2750 South Capital Advisors$3,044 11.3%34.2%
28BNY Mellon Investment Mgmt.$2,921 -0.3%87.5%
29Investcorp$1,997 6.8%100.0%
30 Russell Investments$1,905 22.0%100.0%
31 Meridian Capital Partners$363 -16.4%47.7%
Notes: 1 Data as of July 1, 2017. 2 PAAMCO and KKR Prisma merged in early 2017. Data as of June 30, 2016, are the combined total of each firms' AUM as of that date for comparison. 3 Lyxor used a different methodology to calculate hedge funds-of-funds assets as of June 30, 2017; 2016 AUM has been restated for comparison. 4 J.P. Morgan's 2017 AUM excludes wealth management assets were included in the firm's 2016 P&I survey data. 2016 AUM has been restated for comparison. 5 K2 Advisors restated its 2016 AUM to exclude assets managed in mutual funds.
Source: Pensions & Investments survey

Asset growth generally was better among the 14 hedge funds-of-funds managers running more than $10 billion than for smaller managers, said Agecroft's Mr. Steinbrugge, pointing to AUM growth for 11 of the largest firms.

Seven of the 14 hedge funds-of-funds managers running less than $10 billion which also participated in last year's survey lost assets, he noted. (The three remaining firms of the 31 participants were first-time respondents.)

"Brand is really important in the hedge funds-of-funds space and money is in general going to the established firms with market presence," Mr. Steinbrugge said.

He stressed "the big are getting bigger while smaller hedge funds-of-funds managers have to have really good performance, fill a very specialized niche or have an excellent investment platform" to attract institutional investors.