(Bloomberg) -- Some of the world’s most sought-after hedge funds are handing back billions of dollars to clients — presenting opportunities for smaller peers to seize the flow and grow.
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The likes of D.E. Shaw & Co., Point72 Asset Management, Citadel and Element Capital Management are returning about $15 billion as they try to remain agile enough to move in and out of their bets.
“That money is kind of spilling over into the second level. And this is more or less our daily task to find those managers who are probably running one or two billion and now getting one over the next 24 months,” said Marcus Storr, head of alternative investments at FERI AG, which manages €61 billion ($63.6 billion). “This is our task, to find the second row diamonds.”
Hedge funds managing between $1 billion and $3 billion performed as well as their larger counterparts last year, according to data compiled by fund administrator CITCO — giving those firms the best shot at the cash leaving the biggest players.
In a first, Steve Cohen’s Point72 is planning to give back as much as $5 billion after assets rose to $37 billion, according to a person familiar with the matter. D.E. Shaw is preparing to return billions of dollars too, while Element returned $6 billion last year, Bloomberg has reported.
Bridgewater Associates has also returned some capital to clients and its flagship Pure Alpha fund is closed to new money, according to a person familiar with the matter.
Citadel, meanwhile, invited clients to cash out profits after a 15% gain in its flagship strategy last year, although the vast majority opted to keep their money in the multistrategy hedge fund. Only about $300 million exited the firm.
The situation reflects a major split in the $4.5 trillion hedge fund industry: a vast majority remains starved of capital — investors have pulled almost $70 billion from hedge funds overall over the past five years — while a small number have been flooded with cash. That select group now fear running too much money will harm returns. Staff shortages, limits on leverage and a war for trading talent have also put serious limits on the large firms to keep growing.
Pieter de Weerdt, who leads Antarctica Asset Management that invests in hedge funds, said his firm grew assets by 50% last year but could have done even better. “With more capacity from brand names, we would likely have doubled.”