(Bloomberg) -- Marshall Wace LLP alumnus Ramesh Karthigesu is returning capital in his own hedge fund to join Millennium Management, the latest example of a boutique firm founder tempted by a cash-rich powerhouse.
Karthigesu, who founded Kaizen Capital Partners about four years ago, is expected to start at Millennium next year as a senior portfolio manager, bringing his investment team with him, according to people with knowledge of the matter. He was lured by the better opportunity a global giant can offer to his employees, the people said, asking not to be identified discussing private information.
Millennium declined to comment. A Kaizen representative didn’t respond to a request for comment.
After doubling assets over the past six years to $70 billion, Millennium has been ramping up efforts to recruit investment talent and backing external teams. By contrast, Asia-Pacific hedge funds are facing mounting challenges to expand assets as investors cool toward China, one of the largest markets in the region.
Karthigesu’s decision spelled the end of one of the region’s most high-profile hedge funds in recent years. He initially set up Kaizen in Hong Kong, before relocating to Singapore. The hedge fund generated an annualized return of 15% from its inception in April 2020 through October this year, beating the roughly 10% gain of the MSCI Asia-Pacific Index.
The fund makes bullish and bearish wagers mostly on stocks listed on Asia-Pacific exchanges, gaining 28% in 2022 when the China slump contributed to widespread losses for regional peers. A 20% jump in the first 10 months of this year put it within reach of recouping the lone 20% annual loss recorded in 2023, said the person.
Kaizen was among the largest Asia hedge fund startups during the Covid era, when travel curbs frustrated capital raising. A US regulatory filing put its assets under management at $625 million by the end of last year. The number exclude hundreds of millions of dollars in separate accounts owned by clients, one of the people said.
Millennium has backed a number of investment managers recently. It’s giving about $1 billion to external manager Scopia Capital Management in New York. Chris Tuzzo and Warren Empey, formerly of Kepos Capital, are joining to run about $800 million for a Millennium brand. In Asia, Jai Rajpal’s Crescent Asset Management Asia and Ayan Sen’s Navik Capital (Singapore), once supported by Millennium, were folded into Izzy Englander’s firm in the past year or so. Millennium is also backing Hong Kong-based Centerline Investment Management Ltd., a Greater China market-neutral hedge fund firm.
Multi-strategy, multi-manager firms like Millennium have absorbed the lion’s share of new capital in recent years. Fifty-five such firms nearly tripled their combined assets from 2017, while asset growth has stagnated for the rest of the global hedge fund industry, according to a September 2023 report from Goldman Sachs Group Inc. prime brokers.
Even with renewed enthusiasm for Japan and India, assets of Asia-focused funds by March hovered 5% below the 2021 peak, according to Hedge Fund Research Inc. estimates. Smaller hedge funds also find themselves at a disadvantage fending off the competition from global giants for the best talent.
Still, there are signs the multi-strategy hedge funds are now under greater pressure to generate returns to justify the asset growth and high costs they pass on to their clients. In the 12 months through June 2024, their combined assets declined for the first time in seven years, amid elevated interest rates, Goldman Sachs said in an updated report in September.
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