◼ FINANCE Bloomberg Businessweek August 3, 20201 00%5001 00%50022
inprofits,accordingtoLCHInvestments.But
here’s a revealing detail: In an industry with more
than 8,000 funds, the top 20 managers accounted
for almost half of those profits.
Today, with returns in excess of benchmarks
becoming more and more elusive, the managers
who still make money are mostly the old guard sit-
ting on billions of dollars in assets and adding hun-
dreds of millions to their net worth every year.
Bridgewater Associates founder Ray Dalio added
$480 million to his net worth in 2019 even as the
firm lost money in its flagship fund.
Things are more difficult for smaller money
managers and new hedge funds, who can no longer
count on gathering enough assets to break even. And
then you have veterans such as Martin Taylor, who
came out of retirement last year to start London-
based Crake Asset Management. The manager, who
generated a 6,400% cumulative return for investors
from 1995 to 2015, didn’t just count on his past per-
formance to lure investors. He charged a fraction of
the traditional fees: 0.5% in management fees and
10% in performance fees on the first half of the funds
raised. The rest had to pay 1% for management and
12.5% for performance.
After raising $1.6 billion in 2019 for Europe’s big-
gest hedge fund startup—more than he aimed for—
Taylor lowered the fees even further. Then he closed
the fund to new capital for two years. “Martin rec-
ognizes that the industry has changed,” says Caron
Bastianpillai, who allocates money to hedge funds at
Notz Stucki & Cie. and invested in Taylor’s new firm.
“He has changed the norm.”
At an annual hedge fund meetup in Monaco
last year, most of the 450 delegates arriving in
the nearby French city of Nice eschewed the €140
($165) chopper ride to the sunny principality.
The cost of a seven-minute flight over the French
Riviera was hardly prohibitive—even taxis chargemorethan€100—buttheattendeesweretoocon-
cerned about the optics.
Stuart MacDonald, one of the attendees who
helps funds raise money as managing partner at
Bride Valley Partners, says groups of managers at
the event could be seen planning return journeys
by bus. “Time was,” MacDonald says, “you could
barely see the sky in Monaco at hedge fund con-
ference time, as chopper after whirling-bladed
chopper brought the hedge fund glitterati in
from Nice.” �Nishant Kumar, Hema Parmar, and
DemetriosPogkasTHE BOTTOM LINE Hedge funds have produced less than one-
third of the return of stocks over the past decade, which makes the
traditional 2-and-20 fee model hard for investors to stomach.● The company has the profits to qualify for the index
and could be the biggest ever addedTesla Looms Over
The S&P 500
Beating the S&P 500 is notoriously difficult for fund
managers. But simply replicating it as closely as pos-
sible isn’t always a picnic, either—and Tesla Inc. has
found a way to make it a little harder.
The market value of the electric car com-
pany currently stands at about $275 billion. That
would make it one of the biggest companies in the
S&P 500, except that it isn’t a part of the index yet.
The keepers of that list, S&P Dow Jones Indices,
have a rule that new companies must have been
profitable in their most recent quarter and over
the past year before being added. With its latest*THROUGHDATA:JUNE.EUREKAHEDGE,†THROUGHMARCH.HFRAs Hedge Funds Grow Less Profitable, Fewer Are Launched
Hedge fund assets under management by
managementfeeBy performance fee Net hedge fund
openings1996 2020 †1k0-1
2004 2020* 2004 2020*Fee over 2%1.5 to 2%1 to 1.5%Under 1%Fee over 20%15 to 20%
10 to 15%Under 10%