Size Matters to Hedge Fund Investors

It looks like size is more and more important to investors in hedge funds these days.


During the first half of 2010, nearly all of the $23 billion of new investor capital went to firms with more than $5 billion in assets under management. These firms currently control about 60 percent of all hedge fund industry capital, according to a new report from HFR.

This is consistent with Institutional Investor’s most recent ranking of the world’s 100 largest hedge fund firms, which showed that 86 firms had at least $5 billion.

“People want brand names,” says Trip Kuehne, founder and senior managing partner of Double Eagle Capital Management, an Irving, Texas, fund-of-funds firm.

He insists that most of these firms have sterling reputations, very good past performance records and better alignment of their interests with those of investors since the largest investor in the fund is typically the founder and the holding is no small sum.

The added appeal these days is that a number of large firms with great reputations have opened to new investors for the first time in years, including Tudor Investment and Baupost Group. “When this window is opened, you have to pounce,” Kuehne insists.

The flip side, of course, is that it is getting much harder for start-ups to raise money. Gone are the days when managers with great pedigrees could scoop up $1 billion in a single fundraising.

This is not a bad thing. The largest firms have bigger infrastructures, including analysts, compliance people and risk managers. They also typically provide more detailed information to investors, especially in this post-Madoff era, when even the most secretive firms have discovered transparency.

This is why more and more pros are joining large firms as investment teams. And it is why it has become more appealing for fledgling managers to be seeded by industry giants like Julian Robertson and Ken Griffin.

Stephen Taub

Stephen Taub

Stephen Taub , who has covered the hedge fund industry for 30 years, is a contributing editor to Institutional Investor and Absolute Return-Alpha magazines.