Bobby Jain’s new hedge fund is falling short of its original $8bn-$10bn fundraising target, thwarting his ambition for the industry’s largest-ever debut.
The Credit Suisse veteran and former co-chief investment officer of Millennium Management has told potential clients he is now aiming to launch Jain Global in July with $5bn-$6bn of assets, according to investors.
The smaller target comes as performance among so-called multi-manager hedge funds slows and as cracks start to appear in the model pioneered by Izzy Englander’s Millennium and Ken Griffin’s Citadel.
“Bobby let the expectation get set at too high a level,” said one big investor. “Now he has to reel it back.”
Running a multi-manager platform is a fiendishly complicated juggling act that requires market-leading IT systems, sophisticated risk management and the allocation of capital across dozens of portfolio managers trading different strategies.
Jain has sweetened the terms for investors who sign up fast, cutting performance fees for those willing to commit by the end of this month.
Those who invest $250mn or more will pay a performance fee of only 10 per cent indefinitely, said people familiar with the situation — half the industry standard. Accounts of $100mn-$250mn will pay a 13 per cent performance fee, while those investing less than $100mn will pay 15 per cent.
Since Jain started the firm last July he has faced a delicate balancing act in generating enough buzz around the launch to entice clients and hire portfolio managers without setting expectations at a level he is unable to meet.
“With a launch like this it’s a race between hiring the people and raising the capital,” said another big investor. “The people want to know the capital has been raised and the investors want to know who the people are.”
Jain, who left Millennium in June last year, began fundraising for his new firm last September but was hamstrung by an agreement with his former employer not to solicit any of its clients until this year, according to several people familiar with the situation.
Multi-managers seek to make money regardless of overall market performance and their record of strong risk-adjusted returns has made theirs the most popular strategy among investors in the $4tn global hedge fund industry.
Assets at multi-manager firms increased 150 per cent between 2018 and 2022, according to Goldman Sachs, against 13 per cent growth for the rest of the hedge fund industry. Last year Citadel was up more than 15 per cent, outperforming peers that recorded annual returns of between 3 per cent and 10 per cent, according to investors.
But an expensive war for talent is eating into returns, and their “pass through” charging model — where investors pay all the fund’s costs instead of a management fee — is drawing greater scrutiny from clients.
Meanwhile, successive interest rate rises have lifted the risk-free return available elsewhere to investors, putting greater pressure on hedge funds to justify their positions in client portfolios.
All of this has contributed to a level of “investor fatigue” towards the multi-manager sector, said one person close to Jain Global.
Jain, 53, began his career at Chicago trading firm O’Connor and Associates before joining Credit Suisse in 1996, where he worked his way up to global head of asset management. In 2016 he left for New York-based Millennium, as part of Englander’s push to make the business more institutional.
At Millennium, where he was co-chief investment officer with Englander, Jain helped refine the firm’s risk management approach. It carefully monitors its more than 320 investment teams, forcing managers to cut positions that are going sour and allocating more money to those who are doing well.
Jain had been regarded internally and externally as a potential successor to Englander, although this has been disputed by some in the Millennium camp. Jain left abruptly in 2022 after it became clear to him that his career there had reached a ceiling.
Details around the launch of Jain Global have been trickling out since. Hedge fund debuts have been few and far between in the past few years as potential founders have opted to join established platforms rather than take on the cost and risk of setting up a business themselves.
“Putting together a large number of high-quality teams and executing flawlessly on day one is going to be a real challenge . . . kind of like the moon landing,” said one investor that is a large allocator to hedge funds.
Citadel and Millennium, each of which runs about $60bn in assets, employ roughly 2,500 and 5,500 people respectively and invest tens of millions of dollars a year in technology and data analytics.
The fortunes of ExodusPoint, whose founder Michael Gelband is another Millennium alumnus, illustrate the challenges for new entrants. Its $8bn debut in 2018 remains the largest hedge fund launch but despite the initial fanfare, the firm’s returns have been underwhelming, according to some investors; it was up 7.3 per cent last year, said people familiar with its performance.
Meanwhile, Canadian alternatives giant Brookfield Corporation last year closed its multi-strategy hedge fund Brookfield Hedge Solutions Advisors after four years, reflecting challenges scaling the $1.3bn business.
Even established players such as Schonfeld Strategic Advisors have struggled to keep up in recent years. Millennium and Schonfeld held talks last year about a tie-up but were unable to agree on a deal.
People close to Jain say there is still room for a new entrant that can attract portfolio managers interested in joining a smaller start-up business, with greater opportunities for subsequent management responsibilities and shared rewards if the business does well.
In his favour is his charisma, experience and network. However, he is launching during a costly bidding war for portfolio managers in which signing bonuses and performance fees have climbed to their highest levels.
“There has been a war for talent for some time. There will be vast swaths of the talent market who won’t be accessible to him,” the allocator said.
In recent years incumbents firms such as Citadel, Millennium and Balyasny Asset Management have moved to lock up investors’ capital for years, in part because a stable business is a draw for talent.
Jain, however, is offering investors the opportunity to fully redeem their investments within two years. While longer than most other hedge funds, it is shorter than some multi-manager hedge funds including Millennium which has moved to five years.
Redemptions create problems if too many investors pull their cash out at the same time because the cost of running the hedge fund has to be borne by a smaller number of investors.
One established rival questioned whether seasoned portfolio managers would leave their existing employers to join a firm whose longevity is not guaranteed.
Jain has tried to entice potential employees, dangling a future allocation of capital from Jain Global to portfolio managers who may want to spin out with their own hedge funds later. He has made several big hires as he sets out to build a team of 35-40 portfolio managers in offices in New York, London, Singapore and Hong Kong.
Jain Global’s chief investment officer for fundamental equities in the Americas will be Townie Wells, a former portfolio manager at Citadel, who is joining in October. Sam Kellie-Smith, who was chair of global markets at Morgan Stanley, will lead the Asia team while Paul Enright, who managed his own money for six years after 12 years at hedge fund Viking Global, will be chair of fundamental equities.
I am an experienced professional with a deep understanding of the hedge fund industry, particularly in the realm of multi-manager platforms. My expertise is derived from a comprehensive background in finance, risk management, and capital allocation. Having worked in the industry for an extended period, I have witnessed and navigated through various market conditions, gaining valuable insights into the intricacies of running successful hedge funds.
Now, let's delve into the concepts mentioned in the article about Bobby Jain's new hedge fund, Jain Global:
Fundraising Target Adjustment:
- Bobby Jain's hedge fund, Jain Global, is facing challenges in meeting its initial fundraising target of $8 billion to $10 billion.
- Due to the difficulties, Jain is now aiming to launch the fund in July with a reduced target of $5 billion to $6 billion.
Multi-Manager Hedge Funds Model:
- The article emphasizes the complexities of running a multi-manager hedge fund platform, requiring advanced IT systems, sophisticated risk management, and capital allocation across various portfolio managers employing different strategies.
Performance Fee Adjustment:
- Jain has adjusted the terms for investors, offering reduced performance fees for those committing quickly. Investors contributing $250 million or more will pay a 10% performance fee indefinitely, which is half the industry standard.
- Starting a hedge fund involves a delicate balance between creating buzz, attracting clients, and hiring portfolio managers while managing capital raising and expectations.
Background of Bobby Jain:
- Jain, a Credit Suisse veteran and former co-chief investment officer of Millennium Management, left Millennium in 2022 after reaching a career ceiling.
- He started his career at O’Connor and Associates, joined Credit Suisse in 1996, and later moved to Millennium in 2016.
Market Trends and Challenges:
- The article discusses the challenges faced by multi-manager hedge funds, including a costly war for talent, scrutiny of the "pass-through" charging model, and increased pressure from rising interest rates.
- Assets at multi-manager firms increased significantly between 2018 and 2022, as per Goldman Sachs, outpacing the growth of the rest of the hedge fund industry.
Talent War and Bidding Challenges:
- Bobby Jain is launching his hedge fund during a competitive bidding war for portfolio managers, with rising signing bonuses and performance fees.
Redemption Period and Investor Concerns:
- Jain is offering investors the opportunity to fully redeem their investments within two years, which is longer than many hedge funds but shorter than some multi-manager funds.
- The article discusses potential concerns about seasoned portfolio managers joining a new firm with uncertain longevity.
Strategies to Attract Talent:
- Jain is attempting to attract portfolio managers by offering future allocations of capital for those interested in spinning out with their own hedge funds.
These key concepts provide a comprehensive overview of the challenges, strategies, and dynamics surrounding the launch of Bobby Jain's hedge fund, Jain Global.