Hedge Fund Managers
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 3,300 hedge fund managers in the US manage investment vehicles that use alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage.
Dependence on Large Investors
Hedge funds depend on institutional investors and high net worth individuals to provide capital for investment.
Competition from Alternative Investment Vehicles
Hedge funds compete with a variety of providers of alternative investment vehicles, including investment management firms, mutual funds, insurance companies, banks, brokerage firms, private equity, and other financial institutions.
Industry size & Structure
The global hedge fund industry includes approximately 18,300 active funds that hold over $4.1 trillion in assets under managements (AUM).
- The North American hedge fund industry accounts for nearly 79% of global AUM, according to Preqin. The US is home to 3,300 of the 5,380 active hedge fund managers tracked by Preqin.
- The industry is concentrated with the 50 largest firms accounting for 55% of industry revenue.
- The US is home to 674 $1 billion+ hedge funds and accounts for 47% of global funds valued at $ billion+.
- Large firms include Bridgewater Associates, AQR Capital Investment, and Sculptor Capital Management.
- Large investment firms with hedge fund operations include BlackRock, Blackstone, and Oaktree Capital.
- According to a survey by the Alternative Investment Management Association, small hedge fund firms can break even managing $86 million in assets, while one-third of profitable firms have less than $50 million in assets.
Industry Forecast
Hedge Fund Managers Industry Growth
Recent Developments
Mar 13, 2023 - Industry Growth Slows
- About 900 new hedge funds were launched in 2022, the lowest number since 2010, according to quant technology provider SigTech. "One possible explanation for this fall is found in the continued rise of large multi strategy funds. These funds are in high demand by institutional investors and have also become an attractive alternative for portfolio managers wanting to strike out on their own," said Daniel Leveau, SigTech’s VP of Investor Solutions. Equity long/short remains the largest hedge fund category (26.9%). Cryptocurrency was the second most popular category for fund launches with 121 new funds (13.4%). Delaware (36%) and the Cayman Islands (31%) continues to be the preferred legal jurisdiction for hedge funds. The US dominates the industry with a market share of 65%, followed by the UK (8.8%) and Hong Kong (3.5%).
- The US Treasury and the Federal Reserve announced measures on March 12 to contain the financial damage from the March 10 closure of Silicon Valley Bank (SVB), likely terminating in the process any hedge fund offers to buy deposits at SVB for what news site Semafor reported to be as little as 60 cents on the dollar. All deposit accounts at SVB will be guaranteed, according to a joint statement released by the Federal Reserve, the Department of the Treasury, and Federal Deposit Insurance Corporation (FDIC). US Treasury Secretary Janet Yellen said that the measures will protect “all depositors,” signaling aid to those whose accounts exceed the typical $250,000 threshold for FDIC insurance. Hedge fund bids ranged from 60 to 80 cents on the dollar, Semafor reported, adding that the range reflects expectations for how much of the uninsured deposits would have been recovered if the bank's assets had been sold or wound down.
- Event-driven hedge funds, including those that bet on company mergers or restructurings, and relative value funds, which trade on asset price dislocations, ended 2022 with losses of 5.04% and 0.9%, respectively. Crypto hedge funds tanked 55.08% after posting positive returns in only three months of the year. Despite their massive losses, crypto hedge funds account for a tiny part of the industry's $3.8 trillion in assets.
- Proposed regulations from the Securities and Exchange Commission would establish a common benchmark for how environmental, social and governance investment (ESG) products are labeled, marketed, and reported. ESG funds have boomed, exceeding $350 billion in net assets in 2021 in the US. Industry experts say that any changes could prompt investors to exit from funds that don’t appear to be taking the standards seriously. ESG definitions vary widely between funds, making it possible for fund managers to exaggerate their consideration of environmental and other criteria in selecting constituents, according to the SEC. Mutual fund ratings firm Morningstar counted more than 600 funds mentioning ESG in investor literature before it changed how it tracked such funds in part because blanket sustainability statements are increasingly common, the company said in a letter to the SEC. Hedge fund managers are expected to embrace environment, social, and corporate governance (ESG) investment principles more thoroughly, according to Agecroft Partners. The COVID-19 pandemic shed a bright light on existing social and economic inequities, which is expected to drive more consideration of ESG issues. Pension funds, endowment foundations, and sovereign wealth funds account for nearly half of hedge fund industry assets, and they are increasingly demanding EGS principles from investments. Climate change awareness, in the form of renewable energy, is a key area of ESG investment focus. Investors are also demanding greater diversity both among the workforces of the companies they invest in and the workforces of fund managers.
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