Citadel founder Ken Griffin was only half correct last month when he claimed the multistrategy hedge fund boom had “come and gone,” according to a report by Bloomberg.
While the total assets under management by these multimanager funds have slightly declined compared to 2023 – partly due to firms like Citadel returning billions of dollars in profits to clients – the sector remains robust.
These so-called pod shops are thriving, with several ranking among the largest hedge funds globally. Demand for the top players is strong, performance improved in 2024, and the fierce competition for talent to trade billions shows no sign of abating.
Griffin has predicted consolidation among smaller multimanagers, many of which have emerged over the past 15 years.
Currently, 53 such firms are managing a combined $366bn as of the end of June, a slight drop from $369bn at the same point in 2023, according to a September report by Goldman Sachs Group. Net outflows during this period totalled approximately $31bn – the first net outflows recorded since at least 2017, per Goldman’s data.
However, the outflows were not solely due to clients exiting. Roughly one-third of the withdrawals stemmed from hedge funds proactively returning capital to clients, concerned that managing excessive amounts might hurt performance. Some of the larger firms plan to follow suit in 2025.
Citadel has consistently returned profits to investors, amounting to $25bn since 2017, and managed $66bn as of 1 December 2024.
In a first for the firm, Steve Cohen’s Point72 Asset Management announced in September that it would return profits after its assets surpassed $35bn.
Investors have flocked to multimanager funds in recent years due to their steady returns, even amid volatile markets. Over the past five years, Citadel’s assets have doubled, matching the growth trajectory of Izzy Englander’s Millennium Management, which managed $72bn at the start of December. New managers also made notable debuts in 2024, with Bobby Jain and Diego Megia each raising more than $5bn for their funds.
Multimanagers account for about 8% of the $4.5tn hedge fund industry, with most assets concentrated in a handful of large firms. Millennium, Citadel, Point72, Balyasny Asset Management, and Hudson Bay Capital Management all manage over $20bn each, placing them among the world’s largest hedge funds.
Unlike Citadel and Point72, Millennium actively markets its fund. This year, when it aimed to raise $10bn, investors pledged more than twice that amount.
As private wealth clients and other investors seek to increase their allocations to these managers, “multistrategy funds are finding new and creative ways to deploy that capital,” said Gordon Corbett, global head of consulting in prime financing at Bank of America Corp.
This includes hiring more internal teams, allocating funds externally to other hedge funds, and in some cases, venturing into private investment opportunities for the first time, Corbett added.
Some smaller funds’ performance improved in 2024, giving them a stronger footing to attract clients. Schonfeld Strategic Advisors, which nearly merged with Millennium before talks ended abruptly in late 2023, posted returns exceeding 17% for both of its funds through November 2024.
Cinctive Capital Management’s main fund delivered a 21% return through November, according to a person familiar with its performance. This follows a nearly 6% loss in 2023, as reported by the Employees Retirement System of Texas, one of its anchor investors.
Goldman Sachs noted that the 53 firms it tracks achieved an average gain of 5% in the first half of 2024, outperforming their total returns for 2023 and putting them on pace to match their five-year annualised average.
The current economic climate has been favourable, said Jon Caplis, head of hedge fund research firm PivotalPath.
“Higher interest rates not only generate positive rebates on short positions, they help separate corporate winners from losers, creating the security dispersion that multistrats require to perform,” Caplis explained.
With the largest players continuing to grow, the competition for top talent remains intense.
Balyasny spent $200m this year to recruit senior money managers as rival firms vie for the same traders capable of managing billion-dollar portfolios while mentoring younger analysts who could lead their own teams one day.
Across the multimanager landscape, investment staff increased by 13%, according to Goldman’s report. Firms have introduced or expanded clawback provisions on bonuses to retain employees and prevent defections to competitors.
