Assets among HFMInvestHedge Billion Dollar Club FoHFs grew by 2.7% to $616bn in the first half of 2018, amid an environment of rising interest rates and increasing geopolitical risks.

The six-month growth beat the 1% rise achieved by FoHFs managing over $1bn for the same period in 2017, when assets increased marginally from $596bn to $603bn.

The first half of 2018 saw the HFMInvestHedge Composite Index gain a muted 0.6%, while the HFM Global Index of single manager hedge funds rose by 1.3%.

Most of the firms included in our ranking saw positive or flat growth during H1. Some 35 firms, with combined assets of $401.9bn, grew by 6.8%, representing 65.2% of the Billion Dollar Club in terms of assets and 50% in number.

Representing 31.7% of the industry, 26 FoHFs managing $195.6bn saw assets decline collectively by 4.5%, from $204.8bn at the start of the year.

Once again, the largest managers achieved the strongest growth rates collectively, while the firms that run between $1bn and $5bn suffered asset declines overall, for the fifth consecutive half-year period.

The regional growth trend seen in recent years continued into H1 2018. The 40 US-based managers in the rankings grew by 3.5% collectively, while the growth rate achieved by European firms was a lesser 1.1%, the region’s strongest H1 gain in three years.

As of 30 June 2018, 69 FoHFs managed over $1bn, the first time the HFMInvestHedge Billion Dollar Club rankings have included less than 70 firms since June 2003. At the time, the 69-strong cohort managed $233bn and was led by GAM’s multi-manager business.

The most recent fall in number, down from 73 in December 2017 and 76 in June 2017, is a result of the continued consolidation of the industry, as well as managers falling below the $1bn marker.

Mesirow Advanced Strategies (MAS) isn’t included in the HFMInvestHedge Billion Dollar Club ranking for the first time since the survey began in 2002, following its acquisition by Lighthouse Partners in July.

MAS, previously the $8bn multi-manager hedge fund division of Mesirow Financial, was a member of the Super League of managers (those with over $10bn in AuM) between June 2006 and December 2016, with peak assets of $16.3bn in 2007.

As a result of the acquisition, Lighthouse Partners achieved the strongest growth of all the firms in the rankings (60%), increasing from $10.4bn to $16.6bn. That leap has moved the firm from eighteenth place to eleventh in the rankings.

On announcing the deal in March, the two firms said a significant portion of the MAS team were expected to join Lighthouse as part of the transition to provide investment oversight, operational support and client service to the MAS business.

Nonetheless, HFM InvestHedge revealed in May that MAS senior management duo Tom Macina and Greg Fedorinchik were not making the move to Lighthouse.

The FoHF Super League now includes several managers that have significantly increased their scale as a result of acquisitions in recent years, including Paamco Prisma, EntrustPermal and Aberdeen Asset Management, which joined when it acquired Arden Asset Management in 2016.

These acquisitions have contributed to the concentration of assets among the largest managers, while the mid-sized bracket of managers running between $5bn and $10bn and smaller-sized firms with between $1bn and $5bn continues to reduce.

Blackstone still leads the ranking eight years after it overtook UBS to take the top spot with $28.5bn. The group’s assets have almost tripled since June 2010 and stood at $77.4bn at the end of the first half, more than the total managed by the nine mid-sized manager firms combined. During the first half its assets increased by 3.1% from $75.1bn to $77.4bn, its strongest H1 growth-rate in three years.

According to Blackstone’s second quarter earnings report the group achieved record inflows over the twelve months to the end of June 2018, driven by customised and specialist solutions, with its individual investor solutions platform up by 24% year-on-year.

The top 10 managers by assets grew by 0.6% during the first half, lagging the 2.1% growth achieved by the top 10 for the same period in 2017, and was significantly lower than the 4.6% increase over the whole of last year. In total, the top 10 firms managed $315.4bn and accounted for 50% of total Billion Dollar Club assets, up 1.7% compared to H1 2017 when the peer group ran $310bn collectively.

Inflows and outflows were evenly split across the top 10, which includes the same group of managers as the December 2017 rankings. UBS Hedge Fund Solutions (HFS) continued to build on the 14% growth rate it achieved for 2017 and its assets increased to over $40.8bn as of June 2018, the highest level since the global financial crisis.

According to Andy Craighead, managing director, head of hedge fund investment specialists, the largest driver of growth came from institutional investors in customised discretionary solutions, through new and existing mandates.

UBS HFS has seen an uptick in demand for hedge funds generally as clients and prospects seek to diversify risk assets into more defensive active portfolios with lower correlation to traditional market indices, Craighead added.

Grosvenor’s assets increased by 3% from $26.5bn in January to $27.3bn by the end of June 2018 – ahead of the 2.2% growth rate it achieved for the whole of 2017. The inflows came from a mix of new and existing clients increasing their allocations.

The firm has seen positive activity from a broad base of investors looking at hedge funds, which isn’t attributable to a particular region or product, but more as a result of improved alpha generation over the last 12 months. Hedge funds positively navigated the volatility when traditional markets were down at the beginning of this year and this was helpful for flows.

Third-placed Paamco Prisma’s assets fell by close to 7% from $35bn to $32.6bn over the first half of the year, which Stephen Oxley, the firm’s vice-chairman, says was not at all outside expectations following the merger of Paamco and Prisma last year.

“Natural client turnover can often be in the region of 15% of AuM per year and in normal circumstances the firm would expect to bring in new clients to replace this. Consultants and institutions tend to place managers on hold after significant events, such as a merger, while the newly-combined group settles in to its new format,” he says.

For the second half of the year, Paamco Prisma, which is primarily operating through two separate, SEC-registered investment adviser entities, plans to combine the two firms to operate as a single investment advisory firm in 2019. This phase of the groups’ consolidation will be led by the new executive committee, which has assumed management following the recent transition to advisory roles of co-CEOs Jane Buchan and Girish Reddy.

Buchan and Reddy, both members of the HFM InvestHedge Hall of Fame, step back after leading their firms for 18 and 14 years respectively.

Since 1 August, Paamco Prisma has been led by an executive committee of six senior members of the combined business, including Anne-Gaelle Carlton, Vince Cuticello, Paul Roberts and Eric Wolfe, who serves as chairperson. The group purposely chose to lead via committee, rather than appointing an individual CEO.

Carlton explains that combining the two legal entities will enable the group to fully integrate and combine its risk and investment management teams to leverage synergies across the board.

It will also enable the group to offer investors its full suite of solutions and products – which includes four new recently launched initiatives – in a simplified way. The desire to streamline investment manager relationships and work with “one-stop-shops” is a trend Carlton has seen among the firm’s clients, she says, as they choose to work with fewer partners that can meet several portfolio needs.

The group recently partnered with the Employees Retirement System of Texas for one of its newest solutions, Paamco Launchpad, a co-investment platform for seeding and supporting emerging hedge funds. In addition, the group has launched a volatility trading fund, a risk-premia solution and a concentrated equity fund this year.

“Our roots are in portfolios of hedge funds, but we began to expand out of the traditional FoHF space over a decade ago with our managed account platform,” says Carlton.

“These new solutions will join our existing suite of products, which include our managed account platform (launched in 2005), LDI products, equity products and our long-only emerging markets solution.”

Across the remainder of the top 10, Goldman Sachs assets increased by 1% to reach $31.3bn and EntrustPermal’s assets grew by 2.5%, while the rest of the peer group all saw outflows.

BlackRock’s assets fell by a marginal 0.3%, FRM fell by 1.7%, to manage $16.8bn at the end of June, while Morgan Stanley and HSBC fell by 2.7% and 4.4%, respectively.

The Super League managers achieved the strongest growth rate of the Billion Dollar Club peer groups. Collectively, the assets of the 21 managers grew by $16bn to reach $451.5bn, compared to $435.4bn at the beginning of the year. That represents an increase of 3.7% for H1 and a weighty 16% increase compared to this time last year, when the Super League ran $388bn and accounted for 64% of the total assets.

The Super League represented almost three quarters of the total Billion Dollar Club assets to the end of June 2018, surpassing the total share it represented before the financial crisis. In June 2008, it accounted for 64% of the industry, with 33 members managing $736bn.

Five years on, 14 managers with AuM over $10bn accounted for a lesser 45% and for $294bn of the total $619bn in assets. Consolidation and the concentration of assets into the largest managers has helped to re-balance the share of assets held by the largest managers to its pre-financial crisis levels and, as of June 2018, to exceed it further.

All $10bn+ managers outside of the top ten saw asset inflows in the first half and four of those managers were among the top ten firms by growth. Hall Capital Partners saw its assets increase by 43%, according to the latest ADV form filed with the SEC. Aberdeen Asset Management’s assets jumped by 14%, its strongest H1 growth since it first featured in the rankings in 2009, following its acquisition of RBS Asset Management’s fund division.

UBP Alternative Investments re-joined the Super League for the first time in three years, as assets rose by 4.8% from $9.9bn to $10.4bn during H1. Lyxor Asset Management is also included in the Super League of managers with $15.3bn, for the first time since June 2012.

Lyxor Asset Management is also included in the Super League of Managers with $15.3bn, for the first time since June 2012. That figure marks a substantial leap compared to the previously submitted figures for the French group, reflective of the fact that a previously excluded managed account advisory mandate has now been included, according to a source familiar with the firm.

Lyxor declined to provide further details. According to publicly available documents, Lyxor is an advisor on the risk mitigation strategies portfolio of the $220bn California State Teachers’ Retirement System. Calstrs’ half-year investment report indicates that as of 30 June 3018, it had $10.7bn invested in global macro and trend-following strategies.

As of 30 June 2018, nine FoHFs had between $5bn and $10bn in AuM, overseeing $59bn collectively, the smallest it has been, both in terms of number and total assets, since HFM InvestHedge began tracking the billion-dollar multi-manager industry.

That cohort grew assets by 1.4% during H1, an identical rate to the same period in 2017, when the peer group also included Pictet, Lighthouse, Lyxor and Mesirow.
Corbin Capital Partners achieved the strongest asset growth (16.6%) of that group and was among the top ten firms by growth rate overall, along with BNP Paribas Capital Partners. Corbin’s assets reached $6.45bn as of 30 June, up from $5.5bn in January 2018.

Commingled assets grew by 10%, while its custom account assets increased by 25%, with much of the inflows coming from the Taft Hartley space. The firm has also expanded its ultra-high-net-worth and endowments/foundations reach.

BNP Paribas Capital Partners achieved double-digit percentage growth in H1 to surpass $5bn. Its assets grew by 14.6% to reach $5.4bn, which Eric Debonnet, head of alternative investments, explains was driven almost entirely via its alternative Ucits FoHFs.

The asset management unit runs a $560m alternative Ucits fund as well as Ucits FoFs that combine long-only and alternative strategies, with some $200m under management. Inflows to its alternative Ucits FoHFs primarily came from BNP Paribas’ private bank network in France and Italy.

Assets of remaining peer group, which includes SkyBridge, LGT Capital Partners, Banca Del Cersesio Group and GAM Multi-Manager, fell.

LGT Capital Partners’ hedge fund assets declined by 12% in H1 and fell below $10bn for the first time since 2016. According to Pascal Pernet, responsible for client solutions at LGT, the main contributors to the AuM fall were performance, the adjustment of LGT Group Endowment’s strategic asset allocation and the redemption of a client mandate.

Magnitude Capital achieved one of the highest growth rates of the smaller-sized managers and was one of the top 10 managers by growth rate overall, alongside Aurum Funds, Seven Bridges Advisors and Stenham Asset Management. Magnitude’s FoHF assets grew by 9% from $3.8bn in January to $4.1bn in June, which Magnitude attribute to a combination of positive performance and net inflows from fundraising success.

Aurum Funds’ assets grew by 9% to reach $2.4bn, Stenham Asset Management saw its assets rise by 15%, while Seven Bridges Advisors grew by 16%.

The smaller-sized peer group as a whole saw its assets fall during the six-month period, for the third consecutive year. The total assets managed by the 39 managers included in this asset bracket fell by 0.6% from $106.35bn in January to $105.74bn by June 2018.

Some 14 firms raised assets, while 17 suffered asset losses. The firms to see the greatest asset drops included Titan Advisors, AllianceBernstein and Private Advisors, which all suffered double-digit percentage growth losses.

Amundi Alternative Investments no longer features in the ranking. The group, which first joined the Billion Dollar Club in 2009 with $12.8bn, closed its managed account platform owing to a reduction in assets last year and as the majority of its FoHFs were invested into its managed accounts, the liquidation of its MAP triggered the closure of its FoHFs.

Amundi is now focusing on alternative Ucits and on developing real assets and private markets through a dedicated platform, which was launched in October 2016 and manages more than $50bn in real estate, private debt, private equity and infrastructure energy assets.

The Billion Dollar Club made a healthy start to 2018, considering the muted median performance gains for the period, and the consensus seems to be that investors are starting to take a closer look at more liquid strategies as the chances for volatility increase.

Multi-managers could be beneficiaries, if hedge funds can produce uncorrelated returns as traditional markets suffer, as demonstrated in February this year. FoHFs posted a slight 0.1% median gain for the start of H2, but if the constituents of the ranking can achieve growth at a similar rate for the rest of the year then the Billion Dollar Club will be on track to exceed the 3.3% growth rate achieved for 2017.

HFM InvestHedge Billion Dollar Club: H1 2018 on HFM InvestHedge.