- Institutionalization was one of the biggest themes in hedge funds this year.
- A once scrappy industry is starting to resemble private equity and venture capital.
- Big firms and launches have evolved significantly from the days of a couple of guys and a Bloomberg.
The game has changed.
Hedge funds, led by the big names who set the agenda for the multitrillion-dollar sector, were once known for their scrappiness, speed, and reliance on the brains and vision of their founders.
Now, as the industry's investor base has shifted to long-term institutions from wealthy families and small funds of funds, hedge funds have become institutions of their own. 2024 may be the turning point that in 10 years' time industry observers will see as the beginning of the next era.
The biggest managers are preparing for life beyond their founders, long-standing funds are becoming more formulaic and bureaucratic, and new entrants need to raise more money than ever before.
Multistrategy managers like Millennium, Citadel, and Point72 have long been heading in this direction, but recent moves by the firms' founders point to a world in which these giants outlast their larger-than-life leaders.
Ken Griffin, Citadel's billionaire founder, said in November that he would be open to selling a stake in his $66 billion Miami-based asset manager. Millennium and BlackRock, the world's largest asset manager, have reportedly had talks about the latter taking a stake in the former.
Both firms are set to outlast their founders, with built-out infrastructure and leadership teams littered with former Goldman Sachs partners. Millennium, for example, created the office of the chief investment officer in late 2022 and promoted a longtime executive, Ajay Nagpal, to president, giving investors a clear line into the next level of leadership beyond the $72 billion firm's founder, Izzy Englander.
The legendary founder of $35 billion Point72, meanwhile, has stepped away from trading his own book of stocks, which is how he burst onto the scene decades ago.
While Steve Cohen spends plenty of time and money on the baseball team he owns, the New York Mets, a person close to the firm said the decision to step back from running a book wasn't an indication that he's spending any less time working at his manager.
In a recent internal town hall, this person said, he described no longer having a book under his purview as "freeing" as he can spend more time on strategic initiatives for the firm. The market's hours no longer dictate Cohen's schedule — a flexibility he appreciates as he balances running the manager and his baseball team.
In mid-October, for example, Cohen was set to appear on a panel at the investment consultant Albourne Partners' annual conference in New York but canceled because the Mets went on a run in the playoffs, people familiar with the event told Business Insider.
Succession, quality launches, and a promising environment
Beyond the main multistrategy names, several long-running firms across the industry are structurally starting to look more like peers in private equity than smaller hedge-fund rivals.
Elliott Management centralized decision-making and created more internal structure, which has frustrated some veterans of Paul Singer's asset manager but provided hierarchy.
Meanwhile, Two Sigma and Bridgewater have officially moved on from their founders with new leadership. Brevan Howard's billionaire founder Alan Howard no longer trades for his firm.
At the other end of the industry, the bar for new launches has increased substantially, and the next generation of industry leaders are starting the firms with a much more institutional feel than even five years ago. Bobby Jain's $5.3 billion launch in July, for example, had plenty of big-name hires and titles right from the start.
In 2023, the average fund launched with $300 million, according to Goldman Sachs' prime-brokerage division. PivotalPath, the industry data tracker run by Jon Caplis, said in an end-of-year report that it expected 2024 to be similar, driven by the increase in multimanagers allocating externally.
The report said larger launches were a result of allocators' focus on "quality" launches; the firm is tracking 145 new funds with launches between the start of 2024 and the second quarter of 2025 with founders who come from funds with more than $1 billion.
If you're able to command enough capital — either from a platform like Millennium or big allocators like pensions, sovereign wealth funds, and endowments — building out a new firm should be worth it. Longtime industry players and investors believe it's shaping up to be a strong period for the industry thanks to increased volatility that will allow actively managed investment firms to shine.
"Our underlying hedge fund managers are active, fundamental stock pickers who seek to identify the best opportunities and offer differentiated exposure," Old Farm Partners, a New York-based fund of funds, wrote in a recent note arguing why active management should shine in the coming years.
"Given the argument that we have laid out in this paper, we think the current market backdrop should provide a favorable setup for our strategy going forward."