(Repeats story from Sunday with no changes to text)
* Majority of money held in funds worth more than $1 billion
* Global hedge fund AuM hits record in April - eVestment
* Large institutions driving flow, demand risk controls
* $100 mln seen as rough threshold to attract mandates
By Simon Jessop
LONDON, June 1 The world's biggest hedge funds
are managing more money than ever before - even while the
returns they provide look less attractive compared to those
achieved by younger, smaller firms.
Large institutions managing money for wealthy individuals
have always tended to look towards well-established money
managers but this trend has become more pronounced following the
According to data from industry tracker Preqin some 90
percent of assets are now held by just 505 funds worth at least
$1 billion. This means a record concentration of assets - much
of the industry's nearly $3 trillion - in older and larger
funds, hedge fund database eVestment said.
As a result young funds are finding it even more difficult
to attract clients in an environment that is tougher than it has
The combination of more demanding clients, higher regulatory
costs and the fallout from the financial crisis saw the number
of young hedge funds with a 10 month record of managing money
fall from a peak of 1,610 in 2007 to 492 in 2013, eVestment data
"It is more difficult for younger funds, if they're not
launching with enough assets, to ... get started at all," said
Peter Laurelli, vice president of research at eVestment.
However, the study by eVestment, using data from its
database of 7,700 funds, showed funds under two years old,
outperformed those aged two to five years or older.
Young funds had the highest cumulative return from January
2003 to December 2013, at 210.56 percent. The mid-age index came
in second at 128.93 percent and the oldest, or 'tenured' funds
posted returns of 123.69 percent, it said.
"A lot of the big hedge funds that have made a name for
themselves have grown so large that it's arguably taken an edge
off their performance," said Bill Muysken, chief investment
officer at consultants Mercer, which advises and places money
for pension funds.
"There are a lot of those large funds that we love, but we'd
love them more if they were running half the money, and love
them even more if they were running half as much again."
Many investors who were burned by the volatile markets of the
financial crisis have turned to big hedge funds for the more
stable returns and safety of size - scale, solid infrastructure
and operational security.
But according to eVestment, young funds provide better
returns precisely because many are not hampered by size, are
better able to time a launch to match market conditions and are
generally more willing to take on risk to establish a good track
For Mercer's Muysken, the most important issue is whether a
business can grow enough to cover its costs, a figure he put at
anywhere between $100 million and $200 million.
"Otherwise it's going to be a disappointing experience all
round if we invest and they decide at some point they haven't
got a viable business."
There's also a practical issue to consider.
Even when big investors wanted to place a portion of their
assets into smaller funds, many were unable to do so because the
scale of their business demanded a minimum mandate size, usually
around $10 million.
Credit Suisse's 2014 hedge fund investor survey showed only
a third of respondents would invest in a fund under $50 million,
while just over half could invest in one between $50 million and
$100 million and three-quarters could do so in one over $100
NEW RULES, NEW PLAYERS?
Small hedge funds seeking to attract institutional investors
have also suffered a loss of support from some of their
traditional backers, investment banks, following the
introduction of new regulations.
Tighter rules demanding that banks have higher levels of
capital to protect against risk have resulted in their prime
brokerage units, which provide services like financing and stock
lending to hedge funds, becoming more cautious.
"We have to be a lot more certain of ourselves that these
guys are the ones that are going to grow, and it may take 3, 4
or 5 years for them to grow into a customer that's meaningful,"
said a hedge fund consultant at a leading investment bank.
"If you're less than $100 million, a pension fund may love
your return profile but say 'I can only write you $10 million
and you're at $80 million, come back when you've raised another
$20 million," he said.
But while regulation may be hampering the growth of some
small funds, other post-crisis regulation like the Volcker Rule
- which stops U.S. banks from trading on their own account - may
yet boost young funds.
There has been a significant increase in the number of
investment banks spinning off hedge funds made up of their
trading teams, says Jonathan de Lance-Holmes, partner at legal
firm Linklaters, "and there's a lot more to come".
(Additional reporting by Nishant Kumar in Hong Kong and Svea
Herbst-Bayliss in Boston; Editing by Sophie Walker)