Welcome to the third edition of The Hedge Fund Journal’s US50 published in association with Newedge Group. Much like its European equivalent, the Europe50, the US50 is a listing of the 50 largest US single hedge fund managers ranked by assets under management at 31 December 2011.
Many of the US50 from two years ago are still present in the third edition, although the relative ranking of many has certainly changed. On a comparative basis, most hedge fund firms have gained assets over the past two years though there are a number that have shrunk notably. Sometimes this is due to investors withdrawing cash after a period of fund drawdowns, other times it is because a particular strategy may have fallen out of favour. Conversely, the attractions of a strategy can certainly help to attract investors.
Macro attracts investors
This is clearly the case with global macro and the rise of Bridgewater Associates to pole position in the US50 and indeed the global hedge fund sector. Founded by Ray Dalio in 1975, Bridgewater rose to the number one position in our 2012 survey: it now manages $76.1 billion in hedge fund assets (plus a further $45 billion in non-hedge strategies). That marks a stunning 69% rise in assets from 31 January 2010.
The rise of Bridgewater and its reputation for being a firm with a unique culture of excellence coincides with the continued burst of allocations to macro strategies. This has also happened in Europe where macro specialist Brevan Howard Asset Management is near the top of the leader board with $33 billion in AUM.
“Macro strategies continue to be popular with investors,” says Robert Kaplan, chief investment officer of Permal Asset Management. “You have to have a global perspective with an appreciation of economic and political factors. It is a strategy that continues to attract most of the assets. We are in a period of lower volatility, but between events on the calendar. There are events that will cause investors to have jitters. In the fourth quarter the US election. Post-election, the end of the Bush tax cuts. And in the meantime there will be ongoing news from Europe on refinancing. Investors are cognisant of all the macro factors playing on markets, so they are allocating more to macro strategies than to all the others.”
The surge of investors embracing macro managers was more than enough for Bridgewater to dethrone J.P. Morgan Asset Management, the leader in the previous US50. This time JPMAM had $45 billion in AUM, down from $54 billion in the 2010 survey. Coming in third and fourth place respectively were Och-Ziff Capital Management and BlackRock. Och-Ziff moves up to third place from fifth with a rise in assets to $29 billion, while BlackRock jumps to fourth from eighth with assets of $28 billion.
Residing at fifth place in the US50 is the venerable Soros Fund Management. It has estimated AUM of about $25 billion. With the firm recently converting to a family office and returning funds to investors, Soros FM will be disappearing from the league table of leading managers. Indeed, in early April it was confirmed that Jonathan Soros, the son of founder George Soros, now 82, is setting up a family office of his own. Changing regulations, including registration and asset position disclosures affecting hedge funds in the US, are expected to drive the evolution of new structures for the foreseeable future. Being less burdensome with respect to regulation and disclosure, the family office structure looks certain to enjoy growing appeal for both established wealth creators and investors able to allocate substantial sums of capital.
Varied strategy hedge funds
The flow of funds to macro and commodity trading advisor strategies reflects how managers in these areas feel comfortable providing investors with active liquidity. Macro funds, in particular, have matched that liquidity with strong returns even if CTAs have found it much more difficult to find trends and harness them to generate performance. Post-2008 it is no surprise why investors continue to prefer strategies concentrated on the liquid end of markets.
Among the hedge fund firms in the top half of the US50, in particular, there are a substantial number which employ a multi-strategy approach to running money. BlackRock, for example, has expanded far beyond its roots and now offers a wide variety of strategies. Its single manager hedge funds sit within BlackRock Alternative Investors, a $100 billion-plus colossus that also includes funds of hedge funds, commodities and real estate.
“The leading hedge funds are by and large firms with a multi-strategy flavour,” says a portfolio manager with a major fund of hedge funds, who notes that these firms have lots of infrastructure and access to plentiful liquidity. “It shows the way forward is to be a multi-strategy fund. If investors want to avoid funds of funds they can go to the big names and get a lot of options. The top hedge funds have become, shall we say, varied strategy with the name recognition that investors can feel comfortable with.”
It is not to say, however, that all firms embracing a multi-strategy investment style have performed well or grown assets. Perhaps the most notable among these firms is Paulson & Co. Though John Paulson profited mightily from the US sub-prime implosion, a raft of new funds and new strategies in existing funds have endured an extremely chequered run. The result is that Paulson’s assets fell to $22.6 billion from $32 billion in 2010, lowering its ranking to seventh from third. In a similar vein, DE Shaw Group has lost substantial ground in terms of AUM even though the firm has introduced more advantageous terms on some funds for its institutional investor client base.
AUM, fund numbers growing
But the overall picture for US hedge funds is one of growth, both in terms of the new funds being launched and the assets being allocated to managers, data from HFR shows. Indeed, there is growing anecdotal evidence that funds of hedge funds are investing more and more in smaller managers in order to bolster their value proposition to investors.
“The first thing to say about flow trends is that we see investors coming back to hedge funds,” says Stefan Keller, head of managed account platform research and external relations with Lyxor Asset Management. “The third quarter of 2011 was terrible for outflow, but the fourth quarter saw recovery and that carried on through January and February. March was stabilising but on a rising trend. Overall, the first quarter of 2012 shows a stronger continuation of what we saw begin in the fourth quarter of last year.”
Many readers will realise that the US has a stringent legal framework in terms of what information funds can and cannot provide. For this reason, many of the hedge funds contacted for this survey were anxious to avoid doing anything that could be construed as solicitation. Though a majority of firms were prepared to provide AUM data, they were more reluctant to provide information about fund names, strategies and portfolio managers. As a result, The Hedge Fund Journal has sourced this information from other sources and sought to verify it where possible.
In closing, we would like to thank Newedge Group for its continued support of this survey.
Download full survey here