The hedge fund industry has been experiencing a consolidation trend for many years now. However, in contrast to the past few years, never was it as pronounced as in 2023. In fundraising terms, smaller hedge funds struggled to raise sufficient capital throughout 2023, while large hedge fund managers saw huge inflows and even extended their offered funds. This effect was especially notable as the industry saw redemptions of a total of $280bn in 2023, as shown in Figure 1. When separating inflows into top-ups and new investments, top-ups dominated over the past three years, which again highlights the strength of established and emerging managers. In 2023, most established managers also were able to generate solid double-digit returns for investors, which is certainly appealing to investors. It is somewhat surprising that there is such a strong tendency towards large and established managers, as it is widely known that these managers charge (substantially) higher fees than other funds. 2023 was also an extreme year in terms of fees, as some of the largest managers keep more than 50% of the gains for themselves and the remainder flows to the investors. This emphasizes the strong preference of investors towards established managers. The reputation and the “proven skill” of these managers provide investors with a certain degree of “safety” when investing in hedge funds.
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