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Why has it been harder for hedge fund start-ups to raise money in 2019?

Only one new hedge fund has managed to reach $2b this year, $6b shy of last year’s highest total.

harder for hedge fund start-ups

Woodline Capital have been somewhat of an anomaly in 2019. They have done what no other hedge fund start-up has been able to do and reached $2b in assets before capping their fund as they prepare to begin trading.

Compare this to 2018 and Woodline Capital fall $6b short of the $8b raised in assets by biggest start-up of the year Exodus Point Capital Management.

Exodus Point were not alone last year, reports claim “record amounts” with $28b being raised during the first half of 2018 alone.

Different story in 2019

In 2019 only a handful of firms have been able to start with $500m or more, other than Woodline the landscape has been bleak.

Not to mention the first 3 months of 2019 were the slowest start to a year for new hedge funds for a decade.

To top this off, clients have pulled $45b from the hedge fund industry this year.

What is causing the smaller asset totals?

Reports claim that investors are preferring a slower and longer ramp for hedge funds in order to refine and optimise both the investment and business side, then scale from there.

This is in contrast to the Fear Of Missing Out (FOMO) approach that investors once took with new hedge funds in past years.
Many are claiming that this mindset has manifested from “investors becoming disillusioned with the industries poor performance and lofty fees.”

Why have Woodline, D1 Capital and Exodus Point bucked the trend?

According to Chief Executive Officer of recruiting firm IDW group Ilana Weinstein, “All of these guys came from multi-manager firms such as Citadel and Millennium. There they learned how to run successful businesses with uncorrelated returns, tight risk management and build a business as PM’s with a discernible track record and that’s what LP’s want.”

  • Michael Gelband of Exodus Point was once seen as the heir apparent to Izzy Englander at Millennium
  • Dan Sundheim of D1 Capital, who were able to raise $4b was the former Chief Investment Officer at Viking Global Investors
  • Woodline consists of a small group of well-pedigreed managers with experience at Citadel including Michael Rockefeller, Karl Kroeke

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