The largest players now make up about three-quarters of the hedge fund industry, as the likes of multi-strategy firms have taken up the lion’s share of the business, according to a Bank of America report seen by Reuters on Tuesday.
Hedge funds that manage more than $5 billion in assets grew their industry share to 73% by the end of the second quarter of 2024, up from 65% in 2018, according to the report, which was sent to clients on Monday.
This came at the expense of mid-sized firms between $1 billion and $5 billion in size, which saw their proportion of industry money shrink 6% in the same time frame.
Multi-strategy firms seem to be a “major driver,” said the report which was the result of a survey of 160 hedge fund investors managing roughly $680 billion that include pensions, family offices, sovereign wealth and funds of hedge funds.
Almost half of those surveyed said they planned to both increase the money they allocate to hedge funds and the number of hedge funds in their portfolios.
But the roughly 6% that plan to take money out of the sector mostly said they would choose a different kind of investment class like private equity, or private credit.
The bigger the investor, the stickier their leaving plans, either fully or partially, the survey showed.
Two-fifths of those surveyed agreed with their hedge funds that performance would have to surpass a certain threshold – or hurdle rate – before the application of fees.
These thresholds, known as “hurdle rates”, included the risk-free rate, an agreed price or used equity indices as a benchmark, said the report.
Top investor concerns included hedge funds crowding into the same trades, not holding enough downside protections and geopolitical risks, the survey said.
