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Big hedge funds picking on smaller rivals

Big small

In banking, the big are getting smaller – at least they’re trying to. In the hedge fund world, it’s the exact opposite. The biggest firms continue to dominate and steal market share from smaller startups that often fail to fully get off the ground.

The latest list of the world’s largest hedge funds offers no surprises. Connecticut’s Bridgewater Associates led the industry yet again with $87.1 billion under management, up nearly 5% from last year. J.P. Morgan Asset Management, owner of multi-strategy fund Highbridge Capital Management, came in a distinct second for the fourth year in a row with $59 billion in assets. The rest of the top five includes veteran firms Brevan Howard Asset Management, Och-Ziff Capital Management Group and BlueCrest Capital Management.

The real headliner of the research isn’t the names, but rather the level of fundraising success these firms have compared to smaller rivals that dedicate more time to the practice. Combined assets under management at the world’s 100 largest hedge funds grew by 14% over the last year, which is a massive number considering many of the firms aren’t even accepting new clients. Over the last two years, top 100 firms saw assets under management grow by 25%.

Before the crisis, fresh hedge fund startups with big-name backers used to recruit money with ease. Now, investors seem happy to leave their assets with established firms, often with more conservative approaches.

As such, new hedge funds are struggling to get out of the starting gate. Despite great market conditions, more than 900 hedge funds closed last year, the most since 2009. Launches are down too, with just 1,060 firms opening their doors in 2013, the least since 2010.

The big are indeed getting bigger. The small, meanwhile, are folding.

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