Size Does Matter: World's Biggest Hedge Funds Manage More Cash
Size Does Matter: World's Biggest Hedge Funds Manage More Cash
The biggest hedge funds across the globe are managing more money even though smaller companies can give better returns, following the financial crisis. In an indication that high net worth individuals and investors are going to err on the side of caution. Large institutions managing money for HNWI are preferring established money managers rather than trusting their cash to newbies in the game. This trend has become more predominant after the epic global recession that tore across regions in its devastating impact.
Industry tracker Preqin has found that 90% of the assets are held by around 505 funds of around $1 billion. A record concentration of assets of around $3 trillion are now in the pockets of older and larger funds. So, when it comes to money management, old is definitely gold.
Young funds are now facing a brand crisis. They cannot attract large clients in a competitive environment that has been made tougher due to this reason. Higher regulatory costs and demanding clients are pushing the smaller forms into a vortex which is difficult to emerge from.
Younger funds are also facing the challenge of getting enough assets to launch themselves. According to eVenstment, smaller funds had a higher cumulative index compared to mid-age or tenured funds. Numerous hedge funds have created a brand identity in this field. So money management is all about size and reputation now. It is not a case of the bigger they are, the harder they fall.
The volatile markets following the financial crisis has increased the brand value of big funds. There is safety in numbers and such firms have stable returns and just the right size. Size also means good infrastructure and operational security. Young funds give off better results, but size and brand value matter more in a market that will be scarred by the insecurities of the global financial crisis for quite some time now.
The biggest questions when it comes to the numbers needed for business growth is whether a company can grow enough to cover its costs. This figure has been pegged at $100 to $200 million by Mercer's Muysken. Apart from the numbers game, there are more practical (or less monetary?) aspects to consider as well such as the minimum mandate size required by big investors to place their assets in funds. For many firms, this magic number is $10 million, a figure which younger and smaller funds cannot reach.
Volumes matter when it comes to money. A 2014 hedge fund investor survey found that one-third of the respondents would consider investing in funds under $50 million while three-quarters would chose to do so if the funds totalled more than $100 million.
It is the case of new rulers, but old players who are ruling the market. Ironically, it is the regulatory factors which are also working in the favour of big funds. In this game of David and Goliath, the bigger aim of getting value for your money seems to be disappearing in the mists of brand building and matters of size as well as muscle power.
