Here are the hedge fund managers to watch in 2019 as the industry battles poor performance
- Hedge fund managers struggled through 2018, as market volatility and fee pressure cut into returns and profits.
- The top funds to watch in 2019 are a mix of well-known veterans, up-and-coming start-ups and star traders ready to set out on their own.
Through the first half of 2018, hedge funds were getting along pretty well. The year did not finish on the same note.
The third quarter was the first three-month stretch where fund closures outpaced launches in more than a year, and market volatility in October and November wiped out many managers' marginal gains for the year.
We talked to top hedge fund consultants, recruiters, lawyers and investors for their picks about the managers they'll be watching next year.
They include well-known names like Point72's Steven Cohen and AQR's Cliff Asness, but also lesser known managers who are distinguishing themselves in other ways with unique strategies.
Here they are.
Point72 Asset Management
Point72 founder Steve Cohen was back to managing outside investor money this year after a two-year ban he received in a government crackdown on insider trading that focused on his old hedge fund firm, SAC Capital.
Cohen, famously known for winning just about any trade he makes, was not immune to the performance struggles that afflicted others in his industry, reportedly finishing flat for the year through November. His firm currently manages around $13 billion, including Cohen's own personal fortune.
His multi-strategy firm, with sub-units running different styles of funds, will still be a big-time draw for both investors and analysts, said Jason Schulman, a partner at recruiting firm Long Ridge Partners. Investors at single-manager firms are starting to sour on the reliance of one single strategy or manager to produce returns, Schulman said, pushing them from funds mimicking Julian Robertson's Tiger Capital Management to platforms like Cohen's.
“Money and investment professionals will flow to larger and more stable platforms,” Schulman said. His firm is starting to get people to return their calls that had ignored them “for six, 12, even 18 months.”
Point72 is ready to grow. The manager's new New York office in Hudson Yards is set to open in early 2019 and is 20% bigger than the combined space at its two Manhattan offices, both on Madison Avenue.
Voleon Capital
The biggest fund founded with machine-learning techniques as the firm's core strategy is, asset-wise, nowhere close to threatening the biggest old-school stock-pickers.
But this new type of fund — which is attracting “gamers, hackers and people who have never played in the space before,” according to Protege Partners chief investment officer Michael Weinberg — is pushing quants and old-school traders alike re-evaluate how they are getting and using data.
The biggest fund in the space is $2 billion Voleon Capital Management, which was founded in 2007 by Michael Kharitonov, who has a Ph.D. in computer science, and Jon McAuliffe, who has a Ph.D. in statistics. Instead of "having humans look at individual events within the marketplace," the firm's algorithms look at "persistent effects across large swaths of data," the firm's website reads.
And performance has, reportedly, been solid, posting annualized returns of roughly 10% since the fund first started trading in 2008 through 2017, despite losing money the first two years.
Kirkoswald Capital Partners
Greg Coffey is beating the United Kingdom to the punch with his own Brexit, as the former star trader at GLG Partners is moving his trading desk for his hedge fund Kirkoswald Capital to New York at the beginning of 2019.
The Australian fund manager retired in 2012 at the age of 41 to spend time with his family before launching Kirkoswald this year. The trader, who was once named the "Wizard of Oz" because of his trading success and Australian heritage, is reportedly concerned with London's role as a financial powerhouse post-Brexit. His concerns echo those of Brexit critics as well as other hedge fund managers like Citadel's Ken Griffin, who said "London’s days as the epicenter of financial markets, for the time being, are now in its past" in November.
Coffey has been confident in his abilities to raise outside capital and generate solid returns, reportedly telling investors in October that he managed $500 million and expected it to double by the end of 2018. Another investor presentation said the firm has the capacity to manage $2 billion. Through the end of October, Coffey's flagship macro fund was reportedly up 6.2% the first six months of the year.
AQR
Cliff Asness’ Twitter alone would be worth mention in this list. Gems from December alone include the man who runs the second biggest hedge fund in the world calling sell-side strategy a “wasteland” as well as quote-tweeting President Donald Trump several times, poking fun at Trump's tariff proposals, business acumen and staffing decisions.
But quant funds in general will be under watch next year, with many eyes focused on the biggest and most vocal player in the space. Performance through October is reportedly down by more than 13% at AQR.
Critics have not just been competitors in the asset management space either as academics have begun pushing the belief that algorithm-driven funds spark unnecessary market sell-offs by blindly following certain signals.
In response to this criticism, Asness pointed out in a tweet that “quants only [get] blamed for the down moves of course,” though he admitted on Twitter that it had been a tough year for quants — while also wishing “a litany of mediocrities” would stop “trying to make a name for themselves by blaming quants for the fact that MARKETS MOVE.”
And while some believe “quants have gotten too big for their own good,” said Don Steinbrugge, CEO of hedge fund consultancy Agrecroft Partners, it won’t stop the field from attracting investors and talented people. Performance through the end of November, according to Hedge Fund Research, for the average quant is -2.83% while the overall industry is at -2%.
Balyasny Asset Management
Dmitry Balyasny has had a rough year. He lost a team of macro traders to Steve Cohen’s Point72 venture in May. He closed off the fund he started during the financial crisis for his “best ideas” in October due to poor performance. And then in early December, the firm reportedly cut 125 people — roughly a fifth of its staff, including 40 investing professionals — as withdrawals and investment losses reportedly totaled about $4 billion for the year.
Balyasny Asset Management grew its office footprint and staff rapidly before this year, with offices now in 10 different cities, according to the firm’s website. The cuts to staff and poaching of talented teams happened after Balyasny hired several portfolio managers from multi-manager competitor Citadel in 2017, according to media reports.
With assets down significantly from its $12.1 billion mark at the beginning of 2018, industry players are keeping their eyes on what the fund manager that wanted to become the “Amazon of hedge funds” with its collection of different strategies will do.
Verition Fund Management
Raising money to start Verition Fund Management was not easy for firm founder Nick Maounis.
For one, he was asking for money in 2008, when the housing crisis pulled the country into a deep recession. But he also was fighting against a force even more toxic than the harsh economic climate — his own reputation. Two years prior, Maounis' first hedge fund, Amaranth Advisors, lost billions on a natural gas trade gone wrong in 2006, and assets went from a high of $9 billion to less than $3 billion in just a couple of years. He started Verition while Amaranth investors were still waiting on what was left of their investments to be returned to them.
Now, 10 years after his second firm's founding, Maounis has started to build up his asset base again, with nearly $2.8 billion in assets, according to a recent regulatory filing. The firm had less than a fifth of those assets to start 2016, past media reports show, proving investors are growing comfortable investing with the former Angelo Gordon trader again.
Part of the asset growth might be linked to the main strategy at the multi-fund manager, a mix of different types of arbitrage bets across markets. With worries about a capital markets slowdown, arbitrage strategies have grown in popularity with investors, said Dean Steinbrugge, CEO of hedge fund consultancy Agecroft Partners.
ExodusPoint Capital Management
The brash new kid on the block this year was Michael Gelband, a former star trader at Millennium who reportedly left after a falling out with Izzy Englander (hence the name of his new firm, ExodusPoint).
He has hired aggressively to staff up his new venture, which broke raised a record-breaking $9 billion before its launch reportedly from the likes of Goldman Sachs, UBS, Blackstone and BlackRock.
As of the end of October, the firm manages $8.4 billion, according to a recent regulatory filing. Gelband brought over scores of past colleagues from both Millennium and Lehman Brothers, as well as recruiting a portfolio management team from the Man Group. Among those hires are Hyung Soon Lee, who is a co-founder of ExodusPoint with Gelband and the former head of equity at Millennium, and Jon Hoffman, former bond trading star at Lehman.
Gelband was in charge of the fixed income desk while at Millennium, but, similar to Englander, will not do any trading himself. And, as fee pressure continues to squeeze, managers, Exodus was able to set a fundraising record with a “pass-through” fee structure that puts investors on the hook for every cost including executives’ air travel, office furniture and “any extraordinary expenses of the funds,” according to a regulatory filing.
Since launching in early June, Gelband's fund has reportedly posted a return of roughly 1% through November.