According to research from IBISWorld, concentration of market share within the hedge fund industry is extremely low. As of this year, the firm states that the four biggest hedge funds hold a collective 13.5% of the market, although that small percentage is still an increase from the 12% it was in 2010.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
Hedge fund concentration is low
That could change, however, as IBIS researchers expect to see big firms continue gobbling up smaller, more boutique-style firms to diversify their investment product offerings. Rothstein Kass Institute conducted a survey which indicated that 2012 kicked off a great deal of consolidation in the hedge fund industry.
This trend has continued into this year, with large firms not only looking for greater economies of scale but also new investment products that will help them differentiate themselves from others. Small firms that are acquired by large firms benefit by falling under the umbrella of a larger and more reputable firm. Many investors prefer to place their assets under management with a well-known firm.
Bridgewater is the biggest player
According to IBISWorld, Bridgewater Associates LP has the largest share of the hedge fund market at 5.5%. Founded by Ray Dalio, the firm has $165 billion in assets under management and offers three main hedge funds: Pure Alpha, which is its flagship fund, All Weather, and Pure Alpha Major Markets.
Over the five years through this year, IBIS states that Bridgewater’s industry-specific assets under management are expected to rise to $110.4 billion at an annualized rate of 19.7%. The firm’s revenue is also expected to rise at that same rate, hitting $3.9 billion this year (Chart is courtesy IBISWorld).
In spite of Bridgewater’s growth in assets under management, its returns haven’t been great in the last several quarters, according to IBIS. According to Bridgewater’s latest investor letter, which was shared with ValueWalk, this year to date, the net return on the firm’s flagship Pure Alpha hedge fund has been 5.49%, thus showing signs of recovery.
Last year the fund returned 2.49%, and in 2013, Pure Alpha returned 3.48% net. In 2012, the fund returned a mere .58% — a huge plunge from 2011’s 16.11% net return and 2010’s net return of 27.4.
JPMorgan holds 3.6% of the hedge fund market
In second place is JPMorgan Asset Management (JPAM), according to IBISWorld, which estimates the firm’s share of the hedge fund market at 3.6%. Globally, the JPMorgan division had $1.7 trillion in assets under management as of the end of December.
IBIS expects JPAM’s industry-specific assets under management and revenue to rise at an annualized rate of 6.1%. AUM is expected to hit $72.5 billion, while revenue is projected to hit $2.6 billion this year.
JPAM saw very strong growth over the last couple of years with strong net inflows to its long term investment products. However, IBIS notes that the outflow of assets from JPAM’s liquidity products in 2013 partially offset those gains.
Och-Ziff, BlackRock nearly tied
IBISWorld estimates Och-Ziff’s share of the hedge fund industry at 2.3%. Towers Watson lists the firm as the 21st biggest alternative asset manager and third biggest domestic direct hedge fund manager, according to IBIS.
As of 2014, 72% of the firm’s assets under management were in one of its multi-strategy hedge funds, with the biggest one being the OZ Master Fund, in which 59% of the firm’s funds are invested. IBIS expects to see Och-Ziff’s five year industry-specific AUM and revenue climb by an annualized rate of 10.9%. The firm projects Och-Ziff’s AUM will hit $46.7 billion this year and revenue will hit $1.6 billion.
Och-Ziff enjoyed healthy growth the last couple of years, with assets under management growing by more than 13% a year between 2012 and 2014. In 2011, Och-Ziff’s AUM only grew by 3.2%.
BlackRock in fourth place
According to IBIS, BlackRock holds approximately 2.1% of the hedge fund industry. The firm has more than $4.5 trillion in assets under management. IBIS projects an annualized growth rate of 14.5% for the firm’s AUM, which is expected to hit $42.2 billion this year, and revenue, which is projected to reach $1.5 billion this year.
BlackRock’s hedge fund net inflows were a healthy $4.4 billion in 2013, an especially strong year for the firm as AUM increased by about 19.9% during the year. BlackRock returned $2.5 billion in capital on opportunistic funds, however, partially offsetting the increase in net inflows.