ExodusPoint, the $11bn multi-strategy hedge fund led by former Millennium executive Michael Gelband, has responded to investor pressure by introducing a new fee structure, tying performance fees to short-term Treasury yields, according to a report by Business Insider.
The move could mark the beginning of a larger shift across the multi-strat hedge fund sector, which includes industry heavyweights including Citadel, Millennium, and Point72.
Multi-strategy hedge funds have long attracted institutional investors by delivering consistent returns in volatile markets, as demonstrated during 2022 when other growth-focused funds, such as Tiger Global and Coatue, suffered sharp losses. In contrast, funds like Citadel and Millennium performed strongly, leading to soaring demand from investors eager to secure returns in uncertain times. As a result, even lower-tier multi-strategy funds were able to demand long lock-up periods and charge high fees.
ExodusPoint’s recent fee concession is one of the first signs that investor sentiment is shifting, and that multi-strategy hedge funds are losing their once-dominant leverage. The firm’s new share class will still charge management and pass-through fees, but will link performance fees to Treasury yields and implement a longer lock-up period, making the fees retroactive to the start of 2024.
While some in the industry view ExodusPoint’s move as a firm-specific response to weaker performance — the fund is up 4.6% through August, well below the S&P 500’s 18% gain during the same period — others believe this marks a broader trend. A Goldman Sachs report indicated that over $30bn in assets have been redeemed from multi-strategy hedge funds between June 2023 and June 2024, marking the first outflows for the sector since 2016.
Investor dissatisfaction has already affected several high-profile fund launches. For example, Bobby Jain’s new hedge fund debuted with $5.3bn in July, falling short of the $10bn that was expected six months earlier. Former Point72 president Doug Haynes also had to dissolve his Norias Research venture before it even launched due to fundraising challenges.
This shifting landscape has empowered institutional investors to demand stronger performance benchmarks to justify the risks and fees associated with hedge funds. In May, the Teacher Retirement System of Texas, a significant ExodusPoint investor, led a group of more than 50 allocators in calling for hedge funds to implement fee hurdles.
