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Around mid-November, investors had their chance to punish hedge funds for trailing the stock market down.

But rather than rushing to the gates, investors largely held their ground leading up to the November 15 redemption deadline imposed by many hedge funds. Some instead moved money from bottom to top performers. One beneficiary: Paul Tudor Jones.

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Paul Tudor Jones

Jones’ flagship Tudor fund grew $1 billion last year from investor commitments and performance gains of more than 10%, a person close to the matter said. Tudor has this year discussed closing the fund to investors following its growth, said two people familiar with the matter. The firm is “reviewing and managing its future capacity very carefully,” the person close to the matter said.

The inflows came as others saw billions of dollars leave during one of the most turbulent years for hedge funds since the 2008 financial crisis. The Absolute Return Composite Index fell more than 2% from October to December, its first three-month losing period since the crisis.

Redemptions caused hedge fund assets to shrink 0.85% in the fourth quarter, according to an analysis of the Absolute Return database. U.S. equity funds were among the strategies that gained money, adding nearly 2% from inflows even as they lost about 7% from performance.

In a report this month, 85% of investors surveyed by Morgan Stanley’s prime brokerage division said total hedge fund industry performance was “disappointing” last year, versus 45% who said the same of their own hedge fund portfolios.

“Redemptions and closures in 2018 were very similar to 2017 and nowhere near the 2016 levels; this would suggest there is room for these statistics to increase in 2019, given 2018 performance,” Morgan Stanley wrote in the report.

Last year marked a reversal of fortunes for Jones, who in 2017 said he would manage a larger portion of the macroeconomic fund’s money after investors pulled billions of dollars due to lagging performance. Tudor’s flaghip fund closed to investors in 2009 but recently took in money following the redemptions.

Tudor will soon lose its second-largest portfolio manager in Dharmesh Maniyar, who plans to leave this year with his namesake fund. He also manages money for the main strategy, which gained 2.6% last month, according to HSBC data.

Investors exited a handful of other large, longstanding hedge fund managers that made negative returns last year. Dmitry Balyasny took the step of flying to meet clients in London and the Middle East after performance losses and investor redemptions shrunk his hedge fund by more than $4 billion last year.

BlueMountain Capital lost $2.5 billion to investor redemptions from its flagship funds, a person close to the matter said. Investors redeemed $500 million from the rest of BlueMountain’s hedge funds, including single investor structures, the person said. The BlueMountain Credit Alternative fund fell 0.45% last year.

The outflows are a setback for BlueMountain as it attempts to broaden focus from credit investing to areas such as government bonds and private infrastructure. BlueMountain’s fixed income team grew to manage 17% of the flagship fund’s capital by the end of the year, the firm wrote to investors in January. BlueMountain also disbanded its energy and industrials stock picking teams, writing that “integration and initial performance were disappointing.”

“In 2018, we diversified BMCA’s sources of return and increased deployed capital to fully invested levels by yearend,” the firm wrote. “This progress reflects our investment in the firm over the past two years, enhancing many of our existing strategies and launching new capabilities.”

Investors also withdrew money from Stephen Mandel’s Lone Pine Capital, which told investors its assets shrunk by 15% from redemptions in 2018, Barron’s reported earlier this month. Lone Pine managed almost $26 billion in equity hedge funds and long-only strategies at the end of 2017, according to regulatory filings. Mandel in January retired as a portfolio manager of the funds, which are now overseen by David Craver, Mala Gaonkar and Kelly Granat.

Other firms have taken in money for strategies that could help weather turbulence in stock markets. Investors increased their demand for credit strategies this quarter while lowering their appetite for stock pickers, according to the Morgan Stanley survey.

Oaktree Capital Management’s multistrategy credit hedge funds grew more than $2 billion to $2.7 billion by the end of December, according to public filings. Oaktree declined to comment.

Jeffrey Talpins’ Element Capital Management raised $3 billion in July, mostly from existing investors. Those commitments helped make Element the largest macro hedge fund overseen by human traders, with more than $17 billion.

Michael Rodwell contributed research to this article.

As investors reshuffle hedge funds, Tudor emerges as one winner on Absolute Return.


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