Tomorrow’s Titans: Blue Chip Managers for the 2010s

In association with Ernst & Young

Originally published in the June 2010 issue

Download Tomorrow’s Titans: Blue Chip Managers for the Next Decade (PDF)

Identifying the industry leaders of tomorrow matters, because allocators need constantly to search for new talent. Some managers among Tomorrow’s Titans are hard closed already, but may be accessible via secondary markets or exchange-listed vehicles.

Sourcing the survey
A broad spectrum of the investment industry contributed to the survey, often on a confidential basis. Amongst allocators, we spoke to pension funds, endowments, foundations, sovereign wealth funds, funds of hedge funds, family offices, insurance companies, wealthy individuals, third party marketing agents and investment consultants. We also canvassed the full range of service providers. All nominations were put on a long list from which we made a final selection of 40.

Many of our emerging leaders cut their teeth trading for the major investment banks such as Goldman Sachs, Deutsche Bank, Citigroup, UBS, Morgan Stanley and Lehman Brothers. Several others began their careers in smaller, more regionally oriented banks such as Sweden’s Skandinaviska Enskilda Banken (SEB) or Canada’s Scotiabank. In addition, some commodity traders started out in the proprietary investment divisions of non-financial companies like Vitol.

A good number of Tomorrow’s Titans left bulge bracket funds to go solo, while some are holding key positions with the largest funds. If the well known “Tiger family tree” shows hundreds of Tiger alumni running hedge funds, then giant funds with over $10 billion of assets such as Brevan Howard, TCI, SAC, Soros, Citadel and Tudor have also bred dozens of fine managers. Talent scouts like Lord Jacob Rothschild are important seeders for our Tomorrow’s Titans, as are sovereign wealth funds, which in some cases are active behind the scenes. Pension funds as seeders were notable by their absence.

The Final 40
The spread of strategies was wide but didn’t feature any managers from the growing “alternatives to alternatives” space. Most managers are traders in macro, commodities, equities or credit: broad and liquid asset classes that weathered 2008 relatively well. Arbitrageurs are few and far between, probably because the more directional strategies generate bigger performance numbers.

The survey focused on identifying emerging leaders for the next decade rather than adopting a tight age limit. The age of managers among Tomorrow’s Titans ranges from just 30 to 45 years old. Some of the group may be less than half way through their careers.
The cosmopolitan nature of the hedge fund industry means that over 20 primary nationalities were on the long list with over 10 in the final 40. The limited number of women making the shortlist very simply reflects their still limited role in occupying senior front-office positions in hedge funds.

The survey focused strictly on hedge fund portfolio managers, and excluded allocators, advisers and service providers.

Unsurprisingly, most of the 40 are based in London or New York.
The final selection of the 40 was made solely by The Hedge Fund Journal.

Manager locations
The geographic distribution of the 40 reveals 17 in the US, 18 in Europe and the rest in Asia and elsewhere. We have grouped the 40 by region, but within each region the 40 are ordered randomly.

Many emerging and frontier markets largely fall outside the scope of the survey, although many of the managers are making significant allocations to these markets.

Nearly all of the managers exhibited academic excellence before commencing their investment careers. This is not surprising when most entry level positions in the investment industry are rationed according to stringent academic credentials. A handful of managers even had their first jobs in academic research rather than finance. None of them seemed to have followed the post room route to hedge fund nirvana.

The final 40 were selected on the basis of their performance as hedge fund managers, the extent of their portfolio management responsibilities and testimonials from investors. Several of the 40 have important behind the scenes roles but aren’t yet the lead portfolio manager. We only considered legal disputes to be a potentially disqualifying factor if a suit directly impacted investment performance. Other types of litigation relating to employment, divorce or personal matters were ignored.

Performance bias
As far as performance is concerned, no formulas are used but there is a bias to managers who held up in 2008 or bounced back strongly from it. In cases where track records are largely or mainly from proprietary desks, formal verification is not always forthcoming so keen judgement is the deciding factor. As far as we know none of Tomorrow’s Titans have blown up, but some may have had losses in 2008. Since liquidity issues, gates and side pockets were so widespread, it was inevitable that some of the funds featuring in the 40 were affected.

Of course the hedge fund industry is, and always has been, so fragmented, diverse and innovative that there are sure to be hundreds of talented managers who don’t feature in the survey. What we can say is that the final selections came from an extraordinarily rich pool of talent that bodes well for investors in the years ahead.

In conclusion, we wish to express sincere gratitude to Ernst and Young for sponsoring the survey.

Ernst & Young

As a leading global provider of services to the hedge fund industry, Ernst & Young is proud to sponsor this report and congratulate the leaders selected as Tomorrow’s Titans by The Hedge Fund Journal. In this time of unprecedented change for the industry, Ernst & Young is already helping Tomorrow’s Titans and their colleagues around the world navigate the shifting landscape for hedge funds.

Over the years, we have helped many firms develop from start-ups to become some of the largest global players. Our team of 2,000-plus hedge fund professionals is very proud of the fact that Ernst & Young currently audits approximately 40% of the top 100 Global Billion Dollar club hedge funds and we provide tax services to about half of them. This depth of experience gives us a unique view of the new challenges facing fund managers today, along with the ability to quickly provide the well informed and practical advice that firms need.

Looking over the list of Tomorrow’s Titans, we are pleased to note the geographic diversity of these leaders, as well as the variety of strategies they employ. Constant growth and innovation have been hallmarks of this industry, and we are more committed than ever to helping our hedge fund clients continue to expand. Clearly, however, with hedge fund firms under more scrutiny from lawmakers, regulators and investors, fund managers today must develop purposefully and intelligently. We are working 24/7 to help these leaders adopt new methods for achieving their long-term goals. We look forward to continuing to collaborate closely with Tomorrow’s Titans and their colleagues for many years to come.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited.