Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target (2024)

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.

Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target (1)

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 expert and enthusiast-based assistant. I have access to a wide range of information and can provide assistance on various topics. I can help answer questions, provide information, and engage in detailed discussions.

Regarding the concepts used in the article you provided, here is some information:

Hedge Funds:

Hedge funds are investment funds that pool capital from accredited individuals or institutional investors and invest in a variety of assets. They are typically managed by professional fund managers and employ various investment strategies to generate returns. Hedge funds often have higher risk profiles compared to traditional investment funds and may use leverage and derivatives to enhance returns. They are known for their flexibility in investment strategies and are subject to less regulation compared to other investment vehicles.

Multi-Manager Hedge Funds:

Multi-manager hedge funds are a type of hedge fund that invests in a diversified portfolio of other hedge funds managed by different portfolio managers. The goal is to achieve diversification across different investment strategies and managers. This approach allows investors to access a broader range of investment opportunities and benefit from the expertise of multiple managers. Multi-manager hedge funds aim to generate consistent returns regardless of overall market performance.

Fundraising and Launching a Hedge Fund:

Fundraising for a hedge fund involves attracting capital from potential investors. Hedge fund managers set fundraising targets to determine the amount of capital they aim to raise. The success of fundraising efforts depends on various factors, including the manager's track record, investment strategy, and market conditions. Launching a hedge fund involves setting up the necessary infrastructure, hiring staff, and implementing investment strategies. It requires careful planning and coordination to ensure a successful launch.

Challenges in the Hedge Fund Industry:

The hedge fund industry faces several challenges, including increasing competition for talent, rising costs, and investor demands for better performance. Established hedge fund firms like Citadel and Millennium have significant resources and established track records, making it challenging for new entrants to compete. The industry's fee structure and charging models have also come under scrutiny, with investors seeking more transparency and lower fees. Additionally, market conditions, such as interest rate changes, can impact hedge fund performance and investor sentiment.

Bobby Jain and Jain Global:

Bobby Jain is a former co-chief investment officer of Millennium Management and a Credit Suisse veteran. He has launched a new hedge fund called Jain Global. Jain initially aimed to raise $8 billion to $10 billion for the fund but has revised the target to $5 billion to $6 billion. Jain has faced challenges in generating enough interest and capital for the fund's launch. He has sweetened the terms for investors, offering lower performance fees for those who commit by a certain deadline. Jain has made key hires and plans to build a team of 35-40 portfolio managers across different locations.

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Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target (2024)
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