Does size matter in the hedge fund industry?
We document a negative and convex relationship between hedge fund size and future risk-adjusted returns. Small hedge funds outperform large hedge funds by 3.65 percent per year after adjusting for risk. This over performance is not driven by fund age, leverage, serial correlation, or self-selection biases.
The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.
The total value of assets managed by hedge funds worldwide reached around USD 4.53 trillion in 2021. Fund managers are also increasingly applying artificial intelligence and machine learning (AIML) techniques to improve operational efficiencies and boost returns.
| Size | AuM | Total Number of Funds |
|---|---|---|
| Small | US$10-100m (average US$37m) | 4,654 |
| Mid-sized | US$101-500m (average US$232m) | 2,004 |
| Large | >US$500m (average US$693m) | 787 |
| Super-large | 10 largest hedge funds (average US$7,721m) | 10 |
1 2 Hedge fund general partners and managers often create high minimum investment requirements. It is not uncommon for a hedge fund to require at least $100,000 or even as much as $1 million to participate.
Most hedge and private equity funds target a net IRR of 15% for their investors (after fees). This provides their investors with a meaningful premium over historical average stock market returns of 8%.
To start a true, institutional-quality hedge fund that uses the LP / GP (Limited Partner / General Partner) structure and has large external investors, such as endowments, pension funds, and funds of funds, you'll need to raise hundreds of millions of USD.
Bridgewater Associates
Today Bridgewater is the largest hedge fund in the world and Dalio has a personal fortune of approximately $19 billion.
In total, Forbes counts 47 hedge fund billionaires who have a combined net worth of $312 billion, up slightly from the same number in 2022 who were worth $310 billion.
BlackRock manages US$38bn across a broad range of hedge fund strategies. With over 20 years of proven experience, the depth and breadth of our platform has evolved into a comprehensive toolkit of 30+ strategies.
What is the survival rate of hedge funds?
In terms of life-spans (see Figure 1), this paper estimates that 70 per cent of hedge funds die within 47 months (i.e. 3.92 years) and the annual attrition rate is 8.67 per cent per annum.
One of the reasons for the perceived high failure rate of hedge funds is that their attrition rate is known to be high, approximately 9% per annum. The latter rate is generally estimated by counting the number of defunct funds in hedge fund databases.
While ZipRecruiter is seeing annual salaries as high as $122,000 and as low as $11,000, the majority of Hedge Funds salaries currently range between $51,000 (25th percentile) to $100,000 (75th percentile) with top earners (90th percentile) making $114,000 annually across the United States.
Some very wealthy individuals invest in hedge funds. Minimum investments of $100,000 are common, and some require $1 million or more.
Raising enough capital (seed money)
Some hedge fund managers claim profitability with less than $10 million AUM, while others believe that a fund must manage $70 million–$100 million in assets to be considered a serious business venture that has some long-term prospects for survival.
Hedge fund managers typically earn above-average compensation, often from a two-and-twenty fee structure. Hedge fund managers typically specialize in a particular investment strategy that they then use to power their fund portfolio's mandate for profits.
Citadel, which ranked second in 2023, made $8.1 billion in profits after bringing in a record-breaking $16 billion in 2022. Its $74 billion in gains since inception rank it as the most successful hedge fund in history.
The average age of hedge fund managers is 40+ years years old, representing 71% of the hedge fund manager population.
Hedge funds
Billionaires have access to another investment avenue, called hedge funds, that the average person doesn't. You can invest in a variety of things through a hedge fund, including individual stocks, land, commodity futures, bonds, and currencies.
The hedge fund is typically set up as either a limited partnership (LP) or limited liability corporation (LLC). In comparison, a general investment manager can set up any type of business structure that meets the needs of the investment manager.
What is the best state to start a hedge fund in?
In addition to Delaware, Nevada and Wyoming are considered advantageous places to set up a company. In any event, given the depth, privacy, predictability and pro-business cast of Delaware's company law, it makes good business sense to set up a hedge fund in Delaware. How many investors can invest in a U.S. hedge fund?
The size of an investor does not necessarily dictate the rate of return that they will receive on their investment; however, there are some general trends that can be observed. In general, larger investors tend to see higher rates of return on their investment than smaller investors.
Larger funds can be an attractive option for investors seeking a diversified exposure through a single commitment. Investors may also find added comfort in larger funds during market headwinds given the lower risk profile.
A debt mutual fund that has a high fund size or larger assets under management is in a better position to distribute fixed fund expenses across its investors. A large fund size would mean a lower expense ratio per person which in turn gets reflected in the fund returns.
| Rank | Firm Name | State |
|---|---|---|
| 1 | Millennium Management | NY |
| 2 | Citadel Advisors | FL |
| 3 | Bridgewater Associates | CT |
| 4 | Balyasny Asset Management | IL |
