Wednesday, 23 December 2009

Inferences from a List of Larger Hedge Funds

Looking through Barron's Market Lab I came across a table of the biggest hedge funds in their univese. There are nearly 1100 single manager hedge funds listed in the newspaper. As is typical in the analysis of hedge funds it may not definitively contain the biggest hedge funds – even the most comprehensive databases may be missing nearly 40% of the largest hedge funds in the top 100 I was told recently – but still it makes interesting reading.

Biggest Hedge Funds in Barron's Market Lab (all data as at end October 2009) 

In terms of strategy representation, and taking account that Barron's reports CTAs separately, there are a several points worth making:

  • Equity long-short is well represented, and it is striking that emerging market equity hedge funds make it to the list.
  • Managers running strategies in fixed income are represented by a credit fund and two mortgage-backed securities funds. Five or maybe more years ago some fixed income relative value funds would be amongst the largest individual hedge funds.
  • Global Macro remains a big strategy – three representatives of global macro present.
  • There is only one CB arb fund in the list – five years ago there would have been several big CB arb funds in such a list.
  • Event-driven funds are under-represented compared to the percentage of industry assets invested in them. Dedicated distressed bond funds are absent (pace universe bias). A couple of multi-strategy event-driven funds are large enough to get into this top 20.
  • It is striking to see a fund in what is considered a niche investment strategy making it to a list of very large funds. The Dexia Index Arbitrage Fund deals only on the most liquid equity markets, and the asset size is a reflection of both the (loyal) client base of the managers, Dexia, and the steady return profile of the Fund.

To generalise from a small sample (1100 self-selecting funds from a universe of maybe 6000 single manager hedge funds):

  • Amongst the very largest funds are multi-strategy funds running $3bn-plus of capital in a single fund structure. This reflects the industry trend towards multi-strategy replacing single-strategy funds in relative value investment strategies particularly.
  • Emerging market investing is now a permanent part of the range of strategies employed by investing institutions, and even after the yo-yo performance and redemptions of the last two years emerging market hedge funds can still rank amongst the largest funds.
  • Hedge funds investing outside the United States are amongst the largest. This particular ranking includes a European specialist (Odey European) and a UK specialist (Blackrock's UK Emerging Companies Fund) as well as emerging market funds. Asia investing is absent on a dedicated basis.

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