By Jack Seibald, global co-head of prime services and outsourced trading at Marex
Jack Seibald
It’s shaping up to be a bumper year for hedge fund launches, with a slew of high-profile funds making their debut. Even more encouraging for me are clear signs that allocators are eager to invest in managers with strong pedigrees. Those were the main headlines I took from the Hedgeweek report on the 20 most exciting hedge funds.
The Ones to Watch report, produced with support from Marex, suggests this year could see more than 40 new launches by managers coming from $1b+ hedge fund firms.
This kind of activity would be welcome at any time, but it’s all the more impressive given how lacklustre the past few years have been.
As Jon Caplis, founder of hedge fund industry research firm PivotalPath, says in the report, “It indicates a new confidence from talented managers to go out on their own.”
Here are my five biggest takeaways in Ones to Watch 2024.
1. Quality and quantity
It’s not just the number of big launches that highlights the strength of the industry’s revival. It’s also the quality of what’s in the pipeline. Prominent among the planned launches is a new multi-billion-dollar fund led by Bobby Jain, formerly the co-CIO at Millennium. There are other major launches on the list from managers formerly with Millennium, as well as managers from Citadel, Elliott Management and CQS.
To put that into context, these blockbuster launches follow a period that Ken Heinz of Hedge Fund Research called the most difficult launch environment he had ever seen. Pandemic aftereffects and the global surge in inflation had put a significant dampener on launch activity.
We saw some initial improvement last year, as new fund launches began to outnumber closures. But it’s the spill-over into 2024 that appears to be making emerging fund managers increasingly optimistic about demand from allocators.
2. Hedge fund managers see pent-up demand
Hedgeweek’s survey found that 70% of emerging managers believed private wealth firms were showing more interest in investing in emerging funds compared to a year earlier.
The pickup was particularly pronounced in Europe, where nearly 90% of emerging managers reported greater potential interest from private wealth. What’s more, roughly half of emerging managers globally believed there was more interest from institutional investors than there had been a year earlier.
The optimism that emerging managers are showing is based on what they’re seeing and hearing from allocators. And clearly, allocators are interested in new ideas and new names for their rosters.
3. Macroeconomic and policy trends are encouraging
But what is fuelling that improved allocator sentiment? A significant part would seem to be due to expectations that interest rates will ease after their sharp surge. That means hedge fund managers have a lower hurdle to clear in terms of beating the risk-free rate.
Previously, managers faced strong pressure to achieve double-digit returns just to compete. Phillip Chapple, COO at Monterone Partners, summed it up well in the report. “I think allocator sentiment has shifted now there is sight of interest rates coming down – it isn’t a case of hedge funds needing to make 10% to beat the risk-free rate in a meaningful way, or even more for a start-up.”
We can also see the improved environment reflected in equity market performance so far. Although the report was produced before news that the Dow Jones Industrial Average had surpassed 40,000, the milestone just serves to underline how much sentiment has picked up.
4. Allocators have a wide range of strategies and geographies to choose from
The diversity in the list is striking.
Just six of the 20 funds in the Hedgeweek list are equity-focused funds, which is a decrease from 15 last year. There are four major multi-strategy launches by former Millennium managers, as well as macro and credit strategy funds.
Geographically, the 20 to watch are split with 10 in the United States, seven in Europe and three in the Asia-Pacific region.
I’m also not alone in noticing the signs that multi-strategy funds are in vogue. “I think the multi-strategy model is strong and has never been stronger,” said Heinz of HFR in the report.
5. Tentative signs of renewal for long/short equity
The report highlighted a modest recovery for the long-suffering long/short equity sector. In February, long/short strategies saw net inflows of $1.5bn, marking the first positive month in almost two years.
Although this gain is small compared to the $70bn withdrawn in recent years, it offers a glimmer of hope for the sector.
The rebound in the equity market appears to have bolstered this segment of the market.
Hedgeweek said this year’s list was a sign of growing industry confidence. “The hedge fund launch market is back in business and 2024 could emerge as a record year.”
From what we can see at Marex, I can only agree.