Biggest hedge funds will keep lion's share of customers in 2023, data shows

Jan 5 (Reuters) - The top 5% of the world's hedge fund

managers are set to take 80-90% of investor inflows in 2023,

according to new research from Agecroft Partners which raises

money for hedge funds.

The data highlights the dominance of a small group that has

squeezed the total pool of hedge funds to its smallest since

Don Steinbrugge, founder and chief executive at Agecroft

Partners, said in the note that the more than 2,000 global

institutional investors his firm has been in dialogue with may

have got it wrong for 2023 in sticking with big hedge funds,

even though it was the larger firms that outperformed last year. The larger a hedge fund manager gets, the harder it is to

trade in size and profit from less efficiently priced parts of

the market. Michael Oliver Weinberg, who previously worked at the Dutch

pension fund APG and now is teaching at Columbia Business

School, agreed. 'As some of these managers have grown immensely, it will be

more difficult for them to generate the same level of returns

they have historically." "Many of them benefited from smaller size and ability to

invest in more capacity constrained trades and markets, that

they now may be too big to invest in,' he said. Data compiled by Hedge Fund Research shows that on average

hedge funds were down 4.1% last year through November. The $100 billion investment manager AQR had multiple funds

which ended 2022 with performance numbers over 30%, including

its Managed Futures HV Fund, at 50%. The $60 billion D.E. Shaw's

biggest hedge fund ended 2022 up 24.7%. The $138 billion U.K. headquartered Man Group reported on

its website, as of the end of November 2022 a 13.1% performance

on its AHL Diversified programme. The $59 billion hedge fund manager Millennium returned 9.8%

in its International Ltd Fund for the year, said industry

research. Smaller managers were squeezed by expenses and lacklustre

revenues last year, said Steinbrugge. The number of operating

hedge funds fell to 9,163 at the end of the third quarter, the

lowest number since 2009, according to HFR. "As a result, we expect the closure rate to continue to rise

for small and mid-sized hedge funds," said Steinbrugge. (Reporting by Nell Mackenzie; Editing by Andrea Ricci)