Winton Capital Management LLC, the London-based firm founded by David Harding, collected more than a 10th of the cash flowing into hedge funds this year as a handful of managers dominated money-raising.
Winton, with $26 billion in assets, pulled in a net $7.3 billion through Oct. 31, according to two investors, who asked not to be identified because the firm is private. In all, nine funds, including Millennium Management LLC and Capula Investment Management LLP, have attracted almost 38 percent of the new money this year, according to investors in the funds.
“It’s been a tough slog,” said Emma Sugarman, global head of capital introduction at BNP Paribas SA in New York. “Most funds expect to end the year flat in terms of inflows and outflows.”
While pension funds from California to Florida to Japan say they plan to invest more with hedge funds, the money coming into the $1.97 trillion industry has yet to regain the levels seen before the financial crisis. In 2007, investors plowed a net $194.5 billion, or about 10.4 percent of total assets, into these private portfolios, according to Hedge Fund Research Inc. This year’s net deposits of $70.7 billion account for just 3.6 percent of industry assets, the Chicago-based firm said.
The most popular funds have attracted new capital because they’re considered defensive strategies, not prone to losing money in volatile markets. They generally avoid making big directional bets or concentrating investments. That’s appealed to investors as the Standard & Poor’s 500 Index has gyrated more than 200 percentage points this year, only to end up about where it started on Jan. 1.
The nine funds, which also include Third Point LLC, Elliott Management Corp., Saba Capital Management LP, DE Shaw & Co., Och-Ziff Capital Management Group LLC (OZM) and BlueMountain Capital Management LLC, account for less than one percent of the more than 2,600 hedge-fund firms operating globally. That concentration doesn’t surprise some investors.
“You don’t see that much creativity amongst pensions or their consultants,” said Brad Balter, head of Boston-based Balter Capital Management LLC, which invests client money in hedge funds. “What you do see is brand names.”
Executives from the firms declined to comment on the fundraising.
Winton, which was founded by Harding in 1997, trades in more than 100 different futures markets, and uses computer models to decide what to buy and sell. The Winton Futures Fund Ltd., which climbed 3.6 percent this year through Oct. 31, lost money in only one year, 2009, when it fell 4.6 percent, according to data compiled by Bloomberg.
Harding, 50, a Cambridge University-educated physicist, was the “H” in the AHL Diversified Plc computerized trading program he co-founded in 1987. Man Group Plc later bought the program, completing the purchase in 1994. Three years later, Harding left to form Winton, which now employs about 100 specialists in fields ranging from statistics to climatology to extragalactic astrophysics attempting to predict market behavior.
Millennium, founded by Israel “Izzy” Englander, has collected a net $4.5 billion this year. The New York-based firm has more than 100 teams using a range of strategies, including stocks, bonds and currencies, to manage $13.4 billion. The fund has climbed about 7 percent this year through Nov. 3, investors said. Like Winton, Millennium has posted just one losing year, when its fund dropped 3.5 percent in 2008.
‘Too Much Capital’
Capula, with $12.5 billion in assets, attracted a net $4 billion. Run by Yan Huo, the London-based firm’s flagship Global Relative Value Fund Ltd. primarily trades government bonds and currencies and has returned 5.3 percent in 2011 though Nov. 4., according to investors. The firm also runs a tail-risk fund, designed to hedge against catastrophic events.
Investors put a net $2 billion into Boaz Weinstein’s Saba, founded in 2009. The firm, which now manages $4.8 billion, has returned about 8 percent this year.
Even as big investors crowd into the same firms, the number of managers getting hefty capital inflows may increase as larger and more established funds limit new investments.
In October, Alan Howard’s Brevan Howard Asset Management LLP said it is returning capital to some investors in its biggest hedge fund after assets rose to about $27 billion. The $14 billion SAC Capital Advisors LP, run by Steven Cohen in Stamford, Connecticut, is closed to new investments, as is the flagship fund at Andreas Halvorsen’s Viking Global Investors LP.
Third Point, the New York-based fund run by Dan Loeb, raised a net $3.4 billion this year, according to one investor. Loeb said earlier that the firm is no longer taking capital from new clients.
“Lots of our funds are closed or just replacing money that has been redeemed,” said Stewart Massey, chief investment officer at Massey, Quick & Co., in Morristown, New Jersey, which invests with hedge funds. It’s a trend that he says has picked up this year. “I think that managers have realized that too much capital degrades returns.”
Hedge funds on average lost 2.9 percent this year through Oct. 31, according to data compiled by Bloomberg. Some of the largest funds posted even worse performance and face huge redemptions because of their missteps.
John Paulson, whose Advantage Plus fund is down 44 percent this year through Oct. 31, saw fourth-quarter redemptions of about $2 billion across all his portfolios. His New York-based firm manages $28 billion.
Investors say they’ve retooled their holdings to better deal with volatile markets, and some of that money has gone to smaller managers.
Dexia Asset Management, a firm that places about $1 billion with hedge funds, has increased its investments in fixed-income managers this year, and reduced allocations to long-short equity funds, said Maia Ferrand, co-head of external multi-management based in Paris. Dexia’s hedge fund of funds is up about 50 basis points for the year.
Of the 22 percent of assets Dexia has invested with stock managers, almost three quarters are in so-called sector funds that specialize in specific industries, including technology, consumer goods and health care. That’s because they consider it easier to find stocks with divergent performance within a sector, especially in a year when correlations among equities are at historic highs, Ferrand said.
“There are funds that are outperforming their peers, and they are getting money,” said Sugarman of BNP Paribas. “It’s not a huge amount in comparison to the biggest players, but it’s meaningful to them.”
Billion-Dollar Money Raisers 2011 Firm PM Net YTD AUM Inflows Returns Winton David Harding $7.3 bln 3.6% $26.1 bln Millennium Israel Englander $4.5 bln 7.0% $13.4 bln Capula Yan Huo $4 bln 5.3% $12.5 bln Third Point Dan Loeb $3.4 bln 0.9% $8 bln Saba Boaz Weinstein $2 bln 8.2% $4.8 bln Elliott Paul Singer $1.5 bln 4.5% $17 bln DE Shaw NA $1.5 bl 19.0%* $23 bln Och-Ziff Dan Och $1.2 bln 0.1% $29 bln BlueMountain Andrew Feldstein $1 bln 3.2% $5.3 bln *DE Shaw Oculus Fund
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