Biggest hedge funds tighten grip

Date: Thursday, May 24, 2007
Author: James Mackintosh, Financial Times

The biggest hedge funds tightened their grip on the industry last year, with the top 100 passing the $1,000bn mark for the first time and holding more than two-thirds of all hedge fund assets, according to a new survey.

The 100 largest hedge funds increased assets 39per cent last year, Alpha magazine found, helped by investment bank-led consolidation and pension funds wanting to invest with big names. Two investment banks, JPMorgan and Goldman Sachs, topped the rankings published yesterday for the second year in a row, with $33.1bn and $32.5bn respectively, followed by Bridgewater Associates, based in Westport, Connecticut, with $30.2bn.

New York's DE Shaw - in which Lehman Brothers took a 20 per cent stake in March - was fourth with $27.3bn. The increasing concentration at the top of the industry is being driven by acquisitions by the big investment banks, which have bought all or part of more than a dozen hedge funds over the past 12 months. Increased investment in hedge funds by institutions such as pension funds and university and charitable endowments is also pushing money into the big names that can demonstrate the strong risk controls and regulatory compliance the investors demand.

"The only people who can put in the massive additional risk management that is required by the institutional investors are thebiggest funds," said RobMirsky, Deloitte's UKhedge fund practice leader. The rapid growth of the top 100 funds gave them 68 per cent of the $1,464bn the industry was estimated to manage at the end of 2006 by Chicago-based Hedge Fund Research.

At the start of the year they held 65 per cent of the estimated $1,100bn industry.

The biggest funds arenot always the best performers. Goldman's flagship Global Alpha had a dire year, losing 6 per cent for investors while Bridgewater's Pure Alpha was estimated to have risen only 3.4 per cent.

Many in the industry attribute falling returns from the industry as a whole over the past several years in part to the demand by institutional investors for less risk.

Top funds

JP Morgan: $33.1bn

Goldman Sachs: $32.5bn

Bridgewater Associates: $30.2bn

DE Shaw: $27.3bn

Farallon Capital: $26.2bn

Renaissance Technologies: $26bn

Och-Ziff Capital: $21bn

Barclays Global Investors: $18.9bn

Man Investments: $18.8bn

ESL Investments: $17.5bn

Funds under management - single manager funds only

Source: Alpha magazine