Much has been written about Alpha Magazine’s listing of the world’s largest single-manager hedge funds (the hedge fund industry “sell-side” view). But with the majority of new assets expected to flow into hedge funds coming from institutions, we think its interesting to see who’s in the lead when it comes to winning pension & foundation assets (the hedge fund industry “buy-side” view).
With impeccable timing, Pensions & Investments released their annual ranking of the largest managers of US pensions & foundations yesterday. Bear in mind that the surveys used different methodologies, captured different assets and accounted for subsidiaries differently. So any direct comparison is virtually impossible. But when you see these two sets of rankings, it’s immediately apparent that the overlap is minimal. Either many single-manager hedge funds don’t respond to P&I’s requests for data or they actually manage no tax exempt US assets (given the apparent flood of institutional assets going to the largest hedge funds, we assume it’s a mixture of both).
As a result, the top 25 on P&I’s list include a lot of names you wouldn’t necessarily associate with hedge funds – names like: Legg Mason, PIMCO, Oppenheimer & AIG. In others words, US pensions & foundations seem to prefer names they know – even if the hedge fund industry itself doesn’t view those players as “real” hedge fund managers.
Notably, JP Morgan, the #1 hedge fund manager in the Alpha rankings (thanks in part to recent acquisitions), places a distant 19th when it comes to US pensions & foundations. Curiously, JP Morgan was edged out by none other than Bogle Investment Management. Bogle was founded by John Bogle Jr. Yes, the son of one of the fathers of passive investing beat out a major investment bank on – of all things – a hedge fund list. (ed: does that make Bogle Jr. the brother of passive investing?)
Several other names appear on both lists including Bridgewater (Alpha: $30b, P&I : $18.5b), AQR (Alpha: $9b, P&I: $6b), Morgan Stanley (Alpha: $7.7b, P&I $3b), Goldman Sachs (Alpha: $32.5, P&I: $5b), Kingdon (Alpha: $6.1b, P&I: $1.4b), and a few others.
Overall, the top 25 managers on P&I’s list manage around $85 billion out of a total $25 trillion managed for US pensions & foundations. So concentration in the market for hedge funds at pensions & foundations is obviously not an issue like it is in the hedge fund industry itself (where the top 25 on Alpha’s list manage about $450b out of a total of about $1.6 trillion in hedge funds worldwide). Put another way, there is a lot of room to grow in the tax exempt institutional market.
Collecting data on these things is remarkably difficult. For example, (without naming names) one hedge fund company that is rumored to be preparing an IPO might feel particularly incentivized to provide data while another whose investors are mostly employees might not. But in the end, the message is clear, fiduciaries like the big names. Perhaps that’s why marriages of brand and skills seem to be all the rage right now.