For many investors, hedge funds provide them with clues about directions in which they should take their own portfolios. It’s understandable why the biggest hedge fund managers, or those belonging to Preqin’s “$1 Billion club,” are so closely watched by other investors.
There are several popular strategies followed by this vast pool of hedge funds, but which of them are the most successful and the most-followed by the major funds? Preqin just released the May 2015 edition of its Hedge Fund Spotlight, the firm reports that 92% of hedge fund capital is concentrated among just the top 11% of fund managers.
Biggest hedge funds getting bigger
Preqin also highlighted the biggest funds and explained some basic features of them. One trend the firm’s analysts noted was that many of the largest hedge funds have seen their assets under management climb significantly over the past year. Bridgewater Associates won the title of biggest hedge fund manager according to assets under management. The firm’s assets ballooned from more than $154 billion in March 2014 to nearly $170 billion this past March.
Man Investments was the biggest mover over the last year thanks to several acquisitions, including the June 2014 buyout of Numeric Investors and the February acquisition of NewSmith. In March 2014, Man Investments had a little over $28 billion, and that number nearly doubled to $50 billion in March 2015.
[drizzle]Of course not every firm managed to grow its assets. BlueCrest Capital’s assets fell under the $20 billion+ level, although that was partially due to the spinoff of its BlueTrend funds in January.
Small hedge funds prefer equity strategies
Preqin also found a big difference in the way smaller hedge funds set their strategies compared to the way larger funds do. For example, the firm’s analysts discovered that smaller managers in the $1 Billion Club were more likely to follow equity strategies rather than all of the other assets under management segments. (All graphs/ charts in this article are courtesy Preqin.)
The firm suggests that the reason for this might be problems with “scaling core equity strategies funds without affecting performance.”
Larger hedge funds opt for macro and multi-strategy
On the other hand, the bigger hedge funds in the $1 Billion Club tended to follow macro strategies or a multi-strategy approach, as shown in the graph above. Prequin analysts learned that 18% of managers with more than $20 billion in assets under management use macro strategies, while 24% (an increase from last year’s 20%) use a multi-strategy approach.
The firm suggests that the reason for this could be the interest of investors regarding each particular strategy’s recent performance. For example, the Preqin Multi-Strategy Benchmark saw an 8.47% increase in the 12 months ending in April, which beat the average hedge fund return of 7.2%.
Bigger funds follow more complex strategies
Unsurprisingly, larger hedge funds tend to follow “multi-layered strategies,” which makes sense because they have more resources to use in building their strategies. Also bigger funds are often led by managers who are older and have more experience than the smaller funds.
A major benefit to using various strategies is that it provides more consistent performance, which in turn allows managers to add to their assets under management. According to Preqin’s analysis, 41% of the managers with more than $20 billion in assets under management had at least four strategies, whereas 11% of those with between $1 billion and $4.9 billion in assets offered that many strategies. Further, more than half of those in the lowest bracket offered just one main strategy to their investors.
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