Tomorrow’s Titans 2022

Fifty rising stars

The Hedge Fund Journal
Originally published on 27 July 2022

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Tomorrow’s Titans 2022 [PDF]

The Hedge Fund Journal has been publishing the Tomorrow’s Titans report since 2010, initially once every two years but now annually thanks to growing interest from the industry. Last year’s report can be found here.

The 2022 report highlights several industry trends including: varied manager career backgrounds; growing launch activity away from major hedge fund centres and especially in Asia Pacific; various “quantamental” strategies; more minority-owned managers; multiple ESG strategies; various seeding models; and a broad spectrum of service providers supporting younger funds. 

Many of the launches here came from hedge fund/alternative asset managers or family offices running more than $10 billion, such as Blackstone, Brevan Howard, Citadel, Fiera Capital, GMO, Itau Asset Management, King Street, Macquarie, Man Group/GLG, Marathon, Moore Capital, Millennium, Paulson & Co, Point72, Tudor and York Capital. Some firms sprang out of medium sized firms such as Adelphi Capital, Enko or Fir Tree Capital Partners and the two biotech managers featured in this year’s report were previously at other healthcare specialists. Other managers started their careers at predominantly long only traditional fund managers, such as Aramea, Brown Brothers Harriman, Fidelity, National Bank of Canada, Nomura and Swisscanto. Another group moved into hedge fund management from a market making or proprietary trading background in banks or dedicated firms, which range from regional options specialists in Israel or the US to global investment banks such as UBS or Goldman Sachs. One of the quant managers in the report was previously an eminent astrophysicist in academia and another is an official startup from the University of Zurich.

Allocators’ ESG policies are also paying attention to diversity in asset managers’ staff. At least six of the managers featured here have chosen to classify themselves as ‘minority owned’.

Hamlin Lovell, Contributing Editor, The Hedge Fund Journal

Off the beaten track

It is easiest to find newer managers in the major hedge fund centres such as London and New York, but there are plenty of interesting launches in other locations. In North America, we have found them in other significant financial centres such as Boston and Chicago, but also in Austin and Dallas, Texas; St Louis, Missouri; Charlottesville, Virginia; and Snoqualmie, Washington State. In Canada we have managers in Montreal, Quebec and Winnipeg, Manitoba. Some of the smaller US managers might be regulated by a local regulator in say Massachusetts or Utah, rather than by the SEC, and in Canada the model is anyway to be registered with the local province. In Europe and the Middle East, London is the largest market, but we have identified interesting managers in Hamburg, Germany; Linkoping, Sweden; Cyprus and Israel, as well as in other major financial hubs such as Zurich, Switzerland.

Asia Pacific

For years it has seemed anomalous that Europe’s hedge fund assets dwarf those in Asia Pacific, when its economy and financial markets are many times larger and growing much faster. This balance is partly being redressed through large volumes of launches, and we have featured one manager in Shenzhen, two managers in Hong Kong, two in Singapore and two in Australia, covering a wide range of strategies: discretionary equity long/short; equity market neutral; global emerging markets credit; discretionary macro; fixed income and credit arbitrage; volatility arbitrage and cryptocurrencies. Some of these strategies are wholly or mainly focused on local financial markets but the majority of them invest globally.

Quantamental

Most of the managers are either discretionary fundamental or systematic, but at least seven of them brand as “quantamental” and there are different ways to define and apply this. Sometimes there are both fundamental and quantitative stages or filters in the process, and in other cases the two approaches are integrated. In any case, even those managers who market as discretionary fundamental are making extensive use of quantitative tools for gathering, aggregating, cleaning and analysing data ranging from alternative data in China to merger arbitrage milestones or ESG data.

ESG

At least ten of the strategies managed are explicitly ESG in some form, though the exact definitions, approaches and policies are nuanced. ESG is most often seen in equity market neutral or equity long/short but we also highlight high yield credit and global macro strategies, as well as dedicated carbon trading strategies. There is no one size fits all for ESG since approaches to exclusions, shorting bad corporate actors, scoring and rating, corporate engagement and activism, proxy voting, and positive impact, vary between managers – as do ways of measuring key metrics such as firm and portfolio carbon footprints. And even where other managers do not explicitly label their strategies as ESG, it is often an increasingly important part of their investment and risk process. We say “at least” ten ESG strategies because ESG is evolving very rapidly and it is probable that more strategies will be reclassified as “ESG” over the coming months and years. For instance, some managers await clarity on European rules before making changes such as disclosures under SFDR category 8.

The 2022 report highlights several industry trends including: varied manager career backgrounds; growing launch activity away from major hedge fund centres and especially in Asia Pacific; more minority-owned managers.

Hamlin Lovell, Contributing Editor, The Hedge Fund Journal

Minority ownership

Allocators’ ESG policies are also paying attention to diversity in asset managers’ staff. At least six of the managers featured here have chosen to classify themselves as “minority owned”, of which two are led by women. Another three managers are co-founded and/or co-managed by women. A larger number of the managers have ethnically diverse founders, most often from India or China but also some from Turkey and elsewhere, but are not currently categorizing themselves as “minorities”.

Seeding models

Most of the Titans have set up their own management company, but a few have rolled out new strategies with established managers such as Eckhardt Trading Company or Lighthouse Investment Partners. Some of the managers have raised assets from providers of incubation, seed and acceleration capital, such as Trium Capital, Investcorp-Tages, Stable Capital, or Borealis Strategic Capital Partners. Other investors such as Canadian pension funds, which participate in the Quebec Emerging Managers Program, can also be active in seeding. Some funds have been seeded by wealthy individuals, such as fund manager Alex Waislitz in Australia. The majority have launched with proprietary, personal or friends and family capital, or family office capital. Most of them are running comingled funds though a few are imminently launching them, while a handful are sticking with managed accounts for now. Some of the managers here could be open to acceleration capital deals with the right cultural fit: they are generally looking for broader business support and synergies that go beyond an infusion of capital. In some cases, they may seek seeding for a second or subsequent strategy. 

Service providers

There are reports of some prime brokers or administrators setting minimum levels of assets or revenues for onboarding, though we also see many prepared to take a positive view on the growth prospects of selected newer and smaller managers who may start with modest levels of assets. Prime brokers serving these funds include some of the largest European and US headquartered firms such as BNP Paribas, Goldman Sachs, Morgan Stanley, Société Générale, and UBS and JP Morgan, both of whom have dedicated incubation programs; mid-tier firms such as Jefferies, BTIG, and Interactive Brokers are also quite popular with smaller funds. In some regions the natural choice for a first prime broker might be the local market leader, such as SEB in Sweden. On the administration side, the largest firms such as Northern Trust and SS&C are working with newer funds. Smaller firms such as AK Jensen Group or Apex Fund Services in Europe, and Sudrania or NAV Consulting in the US, also have a healthy appetite for emerging managers. 

While conventional asset classes and the classic 60% equities, 40% bonds mix have spectacularly disappointed investors in the first half of 2022, hedge funds as a whole have done their job and delivered moderately positive returns. The outlook remains constructive for a continued resurgence in hedge fund launch activity. 

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Tomorrow’s Titans 2022 [PDF]