For hedge funds this year, $1 Billion is the loneliest number
Invest / 4 January 2019, 5:00pm / Katherine Burton , Katia Porzecanski , and Nishant Kumar
Hedge fund managers set on starting their own firms in 2019 face the worst money-raising environment in years.
Only one is slated to begin with more than $1 billion: San Francisco-based Woodline Partners, founded by former Citadel duo Michael Rockefeller and Karl Kroeker. The next-biggest are being built by veterans of well-known hedge funds that have either closed or are winding down, according to people familiar with the plans.
Former Perry Capital partner Todd Westhus’s new firm started trading today with $500 million in commitments, and a former trader from BlueCrest Capital Management began with $800 million. A pair from Highfields Capital Management is expected to open later this year with least $500 million.
“You have to be borderline crazy to be starting a hedge fund in this environment and the only way you should do it is if you feel you have something differentiated to offer,” said Ilana Weinstein, founder and chief executive officer of IDW Group, a hedge fund recruiter.
The lack of fanfare around this year’s newbies contrasts with several hotly anticipated startups in 2018 -- including Michael Gelband’s ExodusPoint Capital Management, which began with a record $8 billion in commitments, and Dan Sundheim’s D1 Capital Partners, which launched with about $4 billion. Investors and bankers say the number of inaugural funds in 2019 probably won’t exceed the 450 that started last year, the lowest number since 2000, according to Hedge Fund Research.
Funds face an uphill battle as investor disappointment weighs on the industry after most firms failed to make much money in the decade following the financial crisis. Last year, $11.1 billion left the industry in the first three quarters, the second time in three years that managers have seen net outflows. By contrast, in 2008 at least seven new firms started with $1 billion or more. In 2005, a record 12 firms raised a total of $19 billion combined.
Woodline, this year’s biggest money magnet, is scheduled to open in the third quarter and will focus on health care and technology stocks, accordingto people familiar with the situation.
Craig Peskin and Peter Fleiss, longtime employees of Jon Jacobson’s Highfields Capital Management, are teaming up on a firm that is expected to open in the latter part of 2019 with between $500 million and $1 billion, according to people familiar with their money-raising efforts. Highfields, a Boston-based hedge fund, told clients in October it was shutting this year after two decades in the business.
Olympus Peak Asset Management, headed by Westhus, will cap assets at $750 million, according to people familiar with the firm. It started with 12 people, including seven investment professionals. Westhus worked for a decade with Richard Perry -- who ran a hedge fund for nearly 30 years before closing in 2016 -- focusing on distressed assets.
Mohit Khurana opened his Southern Ridges Capital today with money from Michael Platt’s BlueCrest and several other institutions. Platt returned client capital in 2015 so he could trade with higher levels of borrowed money. Southern Ridges is one of the biggest fund launches in Asia this year and trades currency and interest rate-related instruments.
John McCormick, head of Blackstone Group LP’s alternative unit, said he planned to seed fewer firms this year, focusing on those that could begin with more capital. “We are looking to partner with people who already have a significant following and reputation in the industry,” he said in a December interview.
Other launches that are expected to be among the largest this year:
Michael Phelps plans to start Tresidor Investment Management in the second quarter with 10 investment professionals. It will focus on European high-yield bonds, leveraged loans, convertible bonds and sovereign debt and is targeting to eventually raise $1 billion to $1.25 billion, not including co-investments, according to people familiar with the firm.
Parsifal Capital Management, founded by former BlueMountain Capital Management equity portfolio manager David Zorub, is receiving a $150 million seed from Blackstone, according to people familiar with the firm.
Lauren Taylor Wolfe is opening Impactive Capital. She previously worked at activist firm Blue Harbor Group and will focus on environmental, social and governance investing with an activist bent.
Martin O’Hare, Marcus Strub and Richard Ford, former managers at David Fear’s Thunderbird Partners, will start Fosse Capital Partners, an equity hedge fund, in the second half of 2019.
John Aylward, who managed about $300 million exclusively for Paloma Partners at his London-based credit fund Sona Asset Management, plans to open to other clients this year.