Sources said other specialist TMT and health-care hedge fund managers in favor with institutional investors include Avoro Capital Advisors LLC, Cadian Capital Management LP, Coatue Management LLC, OrbiMed Advisors LLC, Tiger Global Management LLC and Whale Rock Capital Management LLC.
Sources said most of these firms have funds that are closed to new investment. Most of these companies did not respond to Pensions & Investments' request for more information.
"The low capacity in this part of the hedge fund industry is the reason why large institutional investors tend not to invest. They generally just can't put enough money to work to move the needle," said PivotalPath's Mr. Caplis.
The capacity of the combined universes of TMT and health-care hedge funds tracked by PivotalPath totals about $85 billion, with $45 billion run by 85 managers in TMT strategies and $40 billion by firms specializing in health care.
One institutional investor which was able to invest a large amount in a healthcare-oriented hedge fund is the City & County of San Francisco Employees' Retirement System. Investment officers of the $27.2 billion fund increased investment in Perceptive Advisors' Life Sciences Qualified Fund by $150 million to $225 million in January when the manager briefly reopened the fund for new investment.
The fund is part of the SFERS $3.8 billion hedge fund portfolio, according to a Feb. 12 report from William J. Coaker Jr., chief investment officer.
Perceptive Advisors' Mr. Morrow declined to comment on SFERS' additional investment.
The San Francisco system's board also approved an investment of up to $300 million in Matrix Capital Management Fund, a tech-focused health-care hedge fund managed by Matrix Capital Management Co. LP, Waltham, Mass.
In a Jan. 8 report, Mr. Coaker said the fund committed $100 million to the Matrix fund in January and expects to commit an additional $100 million in the first quarter. The Matrix fund is part of the system's $9.4 billion public equity portfolio.
Mr. Coaker did not return a call seeking more information about SFERS' investments in the sector funds.
Because many sector hedge funds are net-long, institutional investors like San Francisco City & County are "more willing to put these hedge funds in their long-only equity portfolios," 50 South Capital's Mr. Frede said.
He added that over the past five years, investment consultants and investors have been "embracing" the addition of these sector hedge funds because "they bring a different level of actively managed strategies into equity portfolios."
General "performance fatigue" likely is one of the drivers behind asset owners' interest in TMT and health-care hedge funds "with a little bit of volatility chasing along with some reasonable beta expectations as well as the chance for alpha," said Craig Bergstrom, managing partner and chief investment officer of Corbin Capital Partners LP, New York, a hedge funds-of-funds manager.
Casting a slightly cynical eye on the performance of TMT and health-care hedge funds, Mr. Bergstrom said, "these hedge funds have done very well, but so have the equity sectors they invest in. There are obviously very talented managers in the space but over the last five years, stock performance has really been driving returns."
Corbin Partners managed $7.8 billion as of Jan. 1.
By way of comparison with sector-specialist hedge fund indexes in the year ended Dec. 31, the NYSE Technology/Media/Telecom index was up 18.9% vs. 14% for the PivotalPath TMT index, while the S&P 500 Pharmaceuticals, Biotech & Life Industry index returned 15.17% vs. 25.1% for the PivotalPath health care index.
TMT-specialist manager SoMa Equity Partners LP, San Francisco, argued against Mr. Bergstrom's point. "While a strong market backdrop (in 2019) has undoubtedly been helpful, we believe we have effectively employed our strategy of finding high-quality investment at opportunistic entry points," the firm stated in a recent client letter obtained by P&I.
SoMa's Founders Fund returned 10.9% in fourth quarter of 2019 and was up 23.96% for the year.
SoMa is closed to new investment to "optimize performance," said Todd Nabi, director, business development.
The firm grew quickly from $58 million when it started in May 2016 to $2.18 billion as of Feb. 1 for a mostly institutional clientele.
Demand from institutional investors continues and if the fund does reopen to new investors, a few new institutional investors can be accommodated if they agree to stagger their investments, Mr. Nabi said.