George Soros’s former chief investment officer has raised $4.5bn for what will be one of the biggest hedge fund launches ever, signalling that investment stars can still attract large sums despite weak performance from the industry as a whole.
Scott Bessent, who worked at Soros Fund Management until August, opened Key Square with a $2bn cheque from his former employer earlier this week, with commitments from at least eight other institutions that will more than double its size by March.
The launch comes at the same time as Chris Rokos, a former star trader at Brevan Howard, prepares one of the largest hedge fund launches in Europe since the financial crisis, and industry players predict a healthy crop of start-ups in the coming year.
This optimism is despite another disappointing year for hedge fund returns, including big losses from some of the industry’s most famous names, and the closure of several prominent funds.
“Do you really want to be in the bond market right now, or the commodities market, or the stock market? Investors are nervous about volatility,” said Paul Roth of law firm Schulte Roth & Zabel, which advises hedge funds.
“I suspect the industry will attract more capital in 2016 because the alternatives are not very good,” he said. “The critical element is pedigree.”
Mr Bessent’s small pool of investors include endowments, charitable foundations and family offices, several of whom he has had relationships with over many years.
According to people familiar with the terms, they have agreed to lock their money up for two-and-a-half years so that Key Square can place large bets on medium-term macroeconomic trends without fear of having to cut the positions prematurely because of redemptions.
Soros Fund Management and Key Square refused to comment on the fundraising, the size of which was first reported by Bloomberg.
Mr Rokos, who settled a non-compete dispute with his former employer last year, is expected to grow quickly to above $1bn in assets. In recent years, European investors have been reticent about writing big tickets for new fund launches, but have become attracted to the idea of smaller, more nimble macro hedge funds after larger peers struggled.
Other industry stars who are planning their own funds this year include Michael Weinberger, who worked closely with Jamie Dinan at York Capital Management.
0.32%
Hedge fund industry’s return in the 11 months to November
The hedge fund industry as a whole returned just 0.32 per cent in the 11 months to November, according to research group HFR, far below the expectations of investors, suggesting a narrower pool of managers with strong enough track records to branch out on their own.
“If you have ‘been to the right schools’, as it were, you can raise money, but for the general run of the mill it is going to be a very difficult period,” said Dixon Boardman, founder of Optima, a fund of funds.
Kenneth Heinz, president of HFR, said that the number of fund launches and closures remained relatively stable in 2015, and that a post-crisis trend of investors favouring large funds had begun to reverse.
“In the third quarter last year, more capital went to midsized firms than to $5bn-plus firms,” he said. “Investors are prioritising return generation and innovation, as opposed to past few years where they prioritised risk-reducing, not only structurally but strategically.”
