(Bloomberg) -- Citadel founder Ken Griffin was only half right last month when he said the multistrategy hedge fund boom had “come and gone.”
Yes, the amount of money these multimanager funds oversee has dipped from last year — partly because some, including Citadel, have returned billions of dollars of profits to clients.
But the firms, also known as pod shops, are still in their heyday — and several rank among the world’s largest hedge funds. Demand for the biggest among them is strong, performance improved this year and the war for talent to trade their billions continues to rage.
Griffin said he expects some consolidation among the smaller multimanagers, most of which have sprung up over the past 15 years.
There are now 53 such firms, which oversaw a combined $366 billion at the end of June, down from $369 billion a year earlier, Goldman Sachs Group Inc. said in a September report. Net outflows totaled about $31 billion over that span, according to Goldman’s calculations, the first time since at least 2017 that more money went out than in.
Even so, it wasn’t all because clients were looking to exit. About one-third of the outflows was attributed to the hedge funds sending cash back unilaterally, worried that managing too much money would weigh on performance. Some of the bigger players expect to do so again in 2025.
Citadel regularly returns profits — a total of $25 billion since 2017. It managed $66 billion as of Dec. 1.
In September, for the first time in its history, Steve Cohen’s Point72 Asset Management said that it would also hand back profits after assets ballooned to more than $35 billion.
Investors flocked to multimanager funds in recent years because of their steady returns, even in volatile markets. Citadel’s assets have doubled over the past five years, roughly the same rate of growth as Izzy Englander’s Millennium Management, which oversaw $72 billion at the start of December. A few new managers have made strong debuts, including Bobby Jain and Diego Megia, who both raised more than $5 billion for their funds this year.
New Pod Shops
While multimanagers only account for about 8% of the $4.5 trillion invested in hedge funds, most of the money in the strategy is concentrated in a few large firms. Millennium, Citadel, Point72, Balyasny Asset Management and Hudson Bay Capital Management all oversee more than $20 billion each, ranking them among the world’s biggest hedge funds.
Unlike Citadel and Point72, Millennium continues to actively market its fund. This year, when it set out to raise $10 billion, investors clamored to get in, pledging more than double that amount.
As banks’ private wealth clients and others look to increase their allocation to these managers, “multistrategy funds are finding new and creative ways to deploy that capital,” said Gordon Corbett, global head of consulting in prime financing at Bank of America Corp. Those include hiring more internal teams, allocating capital externally to other hedge funds and, in a few cases, even exploring private investment opportunities for the first time, he said.
Performance picked up in 2024 at some smaller funds, putting them on better footing to compete for clients. Schonfeld Strategic Advisors, which was close to being subsumed by Millennium before talks abruptly ended in late 2023, posted returns of more than 17% for each of its two funds through the first 11 months of this year.
Cinctive Capital Management’s main fund returned 21% through November, a person familiar with the firm’s performance said. That’s after dropping almost 6% in 2023, according to the Employees Retirement System of Texas, one of its anchor investors.
The 53 firms tracked by Goldman posted an average gain of 5% in the first half, beating their performance for all of 2023. That means they’re on pace to meet their annualized returns of the past five years.
Talent War
The current economic environment is helping, said Jon Caplis, head of hedge fund research firm PivotalPath.
“Higher interest rates not only generate positive rebates on short positions, they help separate corporate winners from losers, creating the security dispersion that multistrats require to perform,” Caplis said.
With some big managers getting even bigger, the competition for talent continues apace.
Balyasny spent $200 million to recruit senior money managers as its peers all vie for the same group of traders who can manage portfolios of at least $1 billion — as well as attract, mentor and retain younger analysts who might run their own books one day.
Across the multimanager universe, investment staff increased by 13%, according to the Goldman report. The firms continued to come up with ways to keep employees from defecting to rivals, including instituting or expanding clawbacks on bonuses.
(Updates with Cinctive returns in 14th paragraph.)
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