Hedge fund stars rake in billions for new funds
Investors back well-known figures as they strike out on their own
he star system is dominating hedge-fund launches this year, with a handful of better known managers raising billions of dollars for new investment vehicles.
The four biggest hedge fund launches of 2018 have attracted more than $17bn, according to figures compiled by the FT. That compares with the $13.7bn investors have put in existing funds, according to data from eVestment.
Leading the way has been Michael Gelband, the former fixed-income trader at Millennium Management and an ex-Lehman Brothers executive, who has secured commitments of more than $8bn, making his hedge fund debut the largest launch ever in the industry.
Daniel Sundheim, former chief investment officer of Andreas Halvorsen’s Viking Capital, is reported to have raised $4bn for a launch. Steve Cohen raked in $3bn from investors when he opened his family office, Point72, to outside money. Greg Coffey, former co-CIO at Moore Capital, capped his fundraising at $2bn.
“Our feeling is that for some time it has been a have- and have-not situation for new firms coming to market,” said Garry Collins, head of capital services in the Americas at Credit Suisse. “There’s an almost insatiable demand for high-quality talent. Investors are really earmarking capital for the right situations: funds with a proven manager, proven record, very strong pedigree with strong references.”
The bulk of the new money invested in hedge funds this year has gone to those that oversee assets of more than $1bn, according to eVestment. Funds with assets below that had redemptions of nearly $2bn.
The allure of new funds has grown as well-known hedge fund managers have struggled in recent years, according to prime brokers, the bankers who service hedge funds, handling everything from loans and trading to research and introductions.
A survey of hedge fund investors conducted by Credit Suisse’s prime services unit found that 63 per cent put money into a start-up this year, up from 43 per cent last year.
Allocators are “more active in early stage managers than they’ve been in the past,” Barsam Lakani, head of prime services sales at Jefferies, said in a May report that noted “2018 is gearing up to be one of the busiest periods for hedge fund launches in years.”
“Five years ago, the majority of talent would launch,” said Stephane Marchand, the head of prime sales for Emea at JPMorgan. “Today, the appetite to take risk to launch has reduced because of barriers to entry.”
The lack of effective succession planning in the industry has also led to more mega-launches, said Mr Collins. Mr Gelband, Mr Sundheim and Mr Coffey were all once second-in-charge at top hedge funds, and struck out on their own rather than wait for their bosses to step aside.
While Mr Cohen has officially launched, the other three are still in the planning stages, with Mr Gelband’s the furthest along. His fund, ExodusPoint, is expected to start trading next month. Mr Coffey’s fund, Kirkoswald Capital, and Mr Sundheim’s, D1 Capital, are likely to launch later in the year.
“When you think about these new launches, they’re coming from well-known firms, where there is a transfer of pedigree and experience,” said Mr Collins. “Investors are looking for something that is proven, not something that is conceptual.”
At the same time, getting into the business has become more difficult than the days when managers could start a hedge fund out of a home office with money from family and friends. Now, they have to raise millions to pay for IT infrastructure, lawyers, regulatory compliance, staff and other back-office functions.
The pipeline for new hedge fund launches — a key measure of the health of the industry — has been thin in recent years. Hedge fund closures have outpaced start-ups for the past three years, according to data from HFR.