Big Hedge Funds Reach 8-Year High Share of Industry, According to Bank of America

By Nell Mackenzie

LONDON – A recent report from Bank of America has revealed that the largest hedge funds now control approximately 75% of the industry. Multi-strategy firms are particularly dominant, having captured a substantial portion of the market.

Hedge funds managing over $5 billion have increased their industry share to 73% by the end of the second quarter of 2024, up from 65% in 2018. This growth has come at the expense of mid-sized firms, which are defined as those with assets between $1 billion and $5 billion; the share of industry capital held by these firms has decreased by 6% during the same period.

The report, based on a survey of 160 hedge fund investors managing around $680 billion—including pensions, family offices, sovereign wealth funds, and fund of hedge funds—indicates that multi-strategy firms serve as a significant driving force behind this trend.

Nearly half of the surveyed investors expressed intentions to increase their allocations to hedge funds, as well as the number of hedge funds in their investment portfolios. Conversely, around 6% of respondents indicated plans to withdraw funds from the sector, primarily opting for alternative investment classes like private equity or private credit.

The survey also revealed that larger investors are more likely to have definitive plans for exiting the market, either fully or partially. Additionally, 40% of those surveyed stated that their hedge funds would need to achieve performance beyond a specific threshold—referred to as a hurdle rate—before management fees are applied.

These hurdle rates may include benchmarks such as the risk-free rate, an established price, or equity indices. Investor concerns highlighted in the survey encompassed issues such as hedge funds concentrating on the same trades, insufficient downside protection, and various geopolitical risks.