Over 60% of Industry Capital is Managed by a Handful of Single-Manager Hedge Funds

by Ross Ford

  • 16 Oct 2012
  • HF

Preqin’s newly launched Hedge Fund Analyst shows that 64.4% of industry capital is managed by the largest 7.5% of single-manager hedge funds. Two thirds of the largest single-manager hedge funds are managed by firms which are based in North America. From this group of the largest hedge funds, 44% are domiciled in Cayman Islands, with a further 30% domiciled in Delaware. Thirty percent of the largest hedge funds are managed by firms based in Europe, with the majority of funds taking advantage of the tax concessions of the domicile of Cayman Islands. This makes the Cayman Islands the domicile of choice for both the largest North America and Europe-based fund managers.

The largest 7.5% of funds use a mixture of 23 different strategies between them.  The most favoured strategy among these funds is long/short equity, which accounts for 28% of the largest single-manager funds. Multi-strategy is the second most commonly employed strategy with 14% of the largest hedge funds utilizing it; larger hedge funds are better adapted to use multiple trading strategies in order to invest large amounts of capital. Event driven funds account for 13% of the largest funds and a macro strategy is used by 10% of the largest hedge funds.

The mean management fee charged by the largest single-manager hedge fund managers is 1.57%; this is below the mean for all single-manager hedge funds of 1.65% and well below the perceived industry standard of 2%. The mean performance fee charged by this group of the largest single-manager hedge funds is 19.19%, which is in line with the mean performance fee for all single-manager hedge funds, which stands at 19.21%. The largest single-manager hedge funds offer an average redemption frequency of 3.4 months, with a mean notice period of 51 days. This is greater than the industry as a whole, which stands at a redemption frequency of every 1.6 months with a notice period of 38 days. Therefore, it is clear that the larger hedge funds, although charging favourable fees, are less liquid than their smaller counterparts due to the amount of time it takes them to exit some of the large positions they may take through their funds.

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