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
                                    Source: Vertical IQ and Inforum

                                    Recent Developments

                                    Nov 12, 2022 - ESG Investment Strategy Effectiveness Questioned
                                    • Investing based on environmental, social and governance (ESG) factors continues growing but the effectiveness of the strategy is unclear. Vanguard Group researchers found no significant difference in returns between ESG and non-ESG funds over a 15-year period. Companies in ESG funds had worse compliance on labor and environmental rules than companies in non-ESG funds, a study from researchers at the London School of Economics and Political Science and Columbia University concluded. Former BlackRock asset manager Terrence Keeley said that the strategy has proved to be neither a reliable generator of returns nor a real catalyst for change. He argues that investors should shift money away from ESG indexes toward “companies with persistent environmental and social problems and engaging them to change.” Keeley was a BlackRock senior adviser who personally managed clients including the Bill and Melinda Gates Foundation and the University of Notre Dame’s endowment.
                                    • 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.
                                    • Hedge funds as a whole outperformed the market in the first half of 2022. The HFRI Fund Weighted Composite Index, an equal-weighted index that takes assets out of the equation, fell 5.9% in the first half of this year but outperformed the S&P 500 and the Nasdaq Composite by 16% and 25.5%, respectively, according to Hedge Fund Research. Equity and event-driven strategies lost 12.3% and 8%, respectively, in the first six months. Macro hedge funds, which gained 9% in the first half of the year, have been the biggest winner, according to HFR.
                                    • Institutional investors withdrew an estimated $27.5 billion from hedge funds in 2Q 2022, according to Hedge Fund Research. It was the highest quarterly outflow since 1Q 2020. HFR cites general volatility, positioning for generational inflation, and increased likelihood of an economic recession as key outflow drivers.
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