$2 billion hedge fund start-up starts trading
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INTERNATIONAL – The biggest hedge fund start-up so far this year is debuting with $2 billion (R29.57bn) in investor commitments and former Citadel traders Michael Rockefeller and Karl Kroeker at the helm.
Their firm, Woodline Partners, began trading on Thursday after the duo decided to cap the size of their fund, according to people familiar with the matter.
They’ll be among a small group of well-pedigreed managers expected to open with at least $1bn in 2019. While last year saw the mega-launches of ExodusPoint Capital and D1 Capital Partners, enterprising managers are facing an uphill battle with investors who have grown disillusioned with the $3.25 trillion industry’s lofty fees and mediocre performance.
With the fear of missing out fading, the first three months of 2019 were the slowest start to a year for new hedge funds in at least a decade. Just 136 funds launched, according to Hedge Fund Research. “Gone are the days where FOMO drove allocators to rush into large launches,” said Les Baquiran, founder of Alpine Capital Advisors, which helps fund managers raise money. “Today most allocators prefer a slower and longer ramp for hedge funds to refine and optimise both the investment and business side, and scale from there.”
About a half-dozen funds will launch with at least $1bn over the next year, according to the prime brokerage unit at Goldman Sachs. Several of the managers behind the most-anticipated startups are alums from Ken Griffin’s Citadel. Former Citadel portfolio manager Jack Woodruff’s Candlestick Capital is slated to begin trading in the coming months, as is ex-Citadel executive Richard Schimel’s Cinctive Capital Management. Woodline, based in San Francisco, will be market neutral - its bets on rising shares will be matched by wagers on falling stocks - and focus on investing in global healthcare and technology companies.
More than half of US hedge fund startups in 2019 have been long-short equity managers, according to Goldman Sachs, and this year’s equity rally has made the strategy the best-performing among hedge fund managers. While clients have pulled $45bn from the hedge fund industry this year, withdrawals from market-neutral stock-pickers have totalled less than $1bn, according to eVestment data.
At Citadel, Rockefeller oversaw a healthcare portfolio from the Bay Area, while Kroeker specialised in tech stocks in addition to serving as regional co-head of the $30bn firm’s Global Equities unit. Matthew Hooker, who was the head of US trading for the same unit, will oversee trading and risk as chief operating officer at Woodline. Rockefeller, 39, resigned from Citadel in 2017 after six years at the firm, where he oversaw as much as $2bn, Bloomberg reported in October. Kroeker, 47, who had been there for 13 years, managed about $3bn and left in February 2017. Hooker, 40, spent 12 years at Citadel and departed in the second quarter of 2017. A Woodline representative declined to comment.
While data show that the average hedge fund’s asset size at-launch has declined in recent years, last year saw records shattered with the $8bn startup Exoduspoint. The firm was founded by Michael Gelband, the former heir apparent at Millennium Management, and started trading last June. Dan Sundheim, the former chief investment officer at Viking Global Investors, followed a month later with $4bn for his fund D1 Capital. “What’s thematic here is that these guys all come from multi-manager” firms, such as Citadel and Millennium, Ilana Weinstein, chief executive officer of recruiting firm IDW Group, said on Thursday in an interview on Bloomberg Television.
There, they “learned how to run successful businesses with uncorrelated returns, tight risk management, and build a business as PMs with a discernible track record, and that’s what LPs want”.