The Billion-Dollar Hedge Fund Club Is About to Get Bigger Lykos Global, JCAP, LuminArx are among those targeting big launches after years of declines in the number of funds By Peter Rudegeair Aug. 3, 2023 7:00 am ET 5 Many pension plans and other fund investors now prefer to back larger firms that can deploy capital across diverse strategies. PHOTO: ANGELA WEISS/AGENCE FRANCE-PRESSE/GETTY IMAGES For startup hedge funds, bigger is increasingly better. A handful of new firms are aiming for 10-figure launches, people familiar with their plans said,including Nick Laster’s Lykos Global; JCAP, the brainchild of a 30-year-old quant; LuminArx Capital Management, started by former Blackstone executives; and stocks-focused Obion Capital Management. In what could be the biggest fund launch of the year, Freestone Grove Partners, started by ex-Citadel and BlackRock executives, aims to raise as much as $4 billion. And an anticipated debut next year from Bobby Jain, Millennium Management’s former co-chief investment officer, could be even bigger. Many pension plans and other fund investors now prefer to back larger firms that can deploy capital across diverse strategies. High costs for talent, compliance and technology, meanwhile, are dissuading managers from launching without sufficient scale. Hedge-fund firms that have more than $5 billion in assets had net inflows of $14 billion in the first half of this year, according to research firm HFR. Those with between $1 billion and $5 billion had inflows of about $1 billion. Firms managing less than $1 billion, by contrast, had net outflows of some $2 billion. Four hedge-fund firms that raised a $1 billion or more launched in 2022 and so far in 2023, accounting for 35% of new fund assets under management, according to research firm PivotalPath. “The recent success of some firms launching over that [$1 billion] mark has lifted the goal posts higher for all new launch expectations,” said Roark Stahler, U.S. head of strategic consulting at Barclays. “The higher the launch point, the easier it is to hire and raise more capital.” More capital also means more income from management fees, but it also can narrow managers’ investment options, limit flexibility and make it harder to notch outsize returns. Bolstered by strong recent performance, total hedge fund assets are approaching their all-time peak of $4 trillion, but the number of funds in operation has been trending downward since 2015, according to HFR. The number of hedge funds launched last year, at 432, was the smallest since 2000, as many portfolio managers who previously would have struck out on their own opted instead to accept multimillion-dollar offers from Citadel, Millennium and other so-called multimanager platforms that invest broadly and have performed well in recent years. Closures have outpaced launches in each of the past four quarters. SHARE YOUR THOUGHTS Do you think any or all of these new funds will achieve a 10-figure launch? Join the conversation below. Lykos’s Laster, a 34-year-old former partner at Soros Fund Management, started meeting with prospective investors in recent weeks in hopes of raising more than $1 billion for his new firm, which plans to invest in companies before and during their initial public offerings and during market dislocations. At Soros, Laster developed a record of investing in hot IPOs, including those of electric-vehicle maker Rivian Automotive and the European owner of Peet’s Coffee. LuminArx, founded by the former Blackstone executives Gideon Berger and Min Htoo, will invest across asset classes, industries and geographies. JCAP, started by Joseph Choi, formerly of the trading firm TGS Management, will use mathematical and statistical methods to “uncover technical indicators with predictive value” in stocks and related derivatives, according to a regulatory filing. The team behind Obion includes David Hobbs, a former partner at D1 Capital, and Keith Weiner, former president of Suvretta Capital. Freestone Grove aims to create a multimanager platform. Its co-founder Todd Barker spent 17 years at Citadel, most recently leading Surveyor Capital, which bets on and against stocks.