2024 is shaping up to be a strong year for hedge funds, with an impressive revival in the launch environment. The rise we have been seeing in the number of talented fund managers setting up new funds, coupled with increased interest from allocators in wanting to invest in managers with strong pedigrees, paints a positive picture.

This is echoed in the Ones to Watch 2024 report, produced by Hedgeweek with support from Marex, which suggests that this year could see more than 40 new launches by managers coming from US$1 billion+ hedge fund firms. This level of activity would be welcome at any time, but it is all the more impressive given how lacklustre the past few years have been.

The current economic climate is undoubtedly fuelling the improved allocator sentiment, with expectations that interest rates will ease after their sharp surge. From a fund manager perspective, the easing of interest rates means that managers have a lower hurdle to clear in terms of beating the risk-free rate.

We are also seeing the improved environment reflected in the equity market performance, with the Dow Jones Industrial Average surpassing 40,000 – a further indicator of just how much sentiment has picked up.

Key trends

The Ones to Watch 2024 includes a list of the 20 most notable hedge fund launches. The report reveals some interesting trends:

1.    Quality and quantity

It’s not just the number of big launches that highlights the strength of the industry’s revival. It’s also the quality. We are seeing major launches in the pipeline from managers formerly with high profile, billion-dollar hedge funds. In the Ones to Watch report, the founders of many of the Top 20 launches have truly top-tier backgrounds.

2.    Increased appetite from private wealth channels

Hedgeweek’s research revealed that, over the last year, family offices and high net worth individuals were more likely to have shown interest in start-ups than institutions. This increased appetite from private wealth is a trend that we are continuing to see. In our experience, allocators are very much engaged in new idea flow and potential additions to their rosters of managers.

Interestingly, the research highlighted that 70% of emerging managers believed wealth managers were showing more interest in investing in emerging funds compared to a year earlier. The pickup was particularly pronounced in Europe, where nearly 90% of emerging managers reported greater potential interest from the sector. 

3.    Equity strategies dominate but multi-strategy trends are rising

Equity strategies were the most represented and featured in seven of the Top 20 most discussed launches in the report. However, this is a decrease from 15 in last year’s report. Multi-strategy funds trends are now shaping the launch market, as well as individual macro and credit strategies. It’s worth noting that investor appetite towards long-short equity has also rebounded after years of outflows.

4.    Allocators have a wide range of geographies to choose from 

Another notable change from last year’s Top 20 is the increase in launch activity outside the US. In last year’s Top 20, 60% were US. This year it is half, with seven European and three in Asia-Pacific. We are definitely seeing LP interest in global opportunities.

5.    Outsourcing is on the rise

The research highlighted that the current break-even point for an emerging manager is widely seen as sub-US$100m: 32% say $50m or less and 55% say US$50-100m. Keeping costs low is a priority for funds of all sizes, but particularly for start-ups. Interestingly, across the board, for funds with asset under management (AUM)’s below US$500m to those above US$5bn, around 50% of respondents said that they are either planning or considering outsourcing more business functions to keep costs down. According to Hedgeweek, the use of outsourcing is likely to increase.

Launching a fund in today’s climate is not without its challenges but the launch market is undoubtedly more buoyant than it has been in recent years, and industry confidence is growing worldwide. 2024 looks set to be a record year.