Point72, Millennium, and other hedge fund giants are entering private credit, ushering in a new era of "slow returns."

The hedge fund industry is undergoing a profound strategic transformation, with many top multi-strategy hedge funds turning their attention to private credit and other private markets in search of new growth drivers.

Media reports on November 12 show that well-known institutions such as Point72 Asset Management, led by Steve Cohen, and Millennium Management, founded by Izzy Englander, are actively expanding into the private credit market, challenging the market dominance of traditional alternative asset giants such as Blackstone, Ares Management, and Apollo Global Management.

Point72 is in preliminary discussions to raise at least $1 billion for a private credit fund. To bolster its capabilities in this area, the company earlier this year hired Todd Hirsch, former Senior Managing Director at Blackstone Group, to head its private capital business. Millennium Management is raising $5 billion for its first private market fund, planning to focus on investing in less liquid corporate and asset-backed bonds, real estate, and other low-correlation strategies.

Behind this strategic shift is the dual pressure of a public market shortage of high-quality assets and the plateauing growth of the hedge fund industry’s scale. Although the total global hedge fund AUM has surpassed a record $5 trillion, some leading funds have paused accepting new money. D.E. Shaw, Point72, Citadel, and Bridgewater have even returned billions of dollars to investors.

Shrinking Public Markets Drive Strategic Transformation

The rapid expansion of private markets presents an opportunity that hedge fund giants cannot ignore. Bank of America research shows that since 2000, the number of US public companies has halved, while the number of private companies supported by venture capital has increased 25-fold.

Since the 2008 financial crisis, the private credit sector has continued to flourish, with a large amount of lending shifting from banks to buy-side firms. Many transaction types, such as structured credit and significant risk transfer deals, are just a step away from traditional hedge funds’ activities in the public bond and equity markets.

Synthetic Risk Transfer (SRT) transactions have grown significantly over the past year. Data shows that the total scale of bank synthetic securitizations now reaches $673 billion. Craig Bergstrom, CIO of New York asset manager Corbin Capital Partners, said:

“In the SRT arena, some managers have long been active in structured credit and the same underlying credit sectors and are important trading counterparties in this market. This expansion feels perfectly natural.”

Talent and Scale Are Key Competition Factors

Hedge fund executives maintain that their expertise in complex risk pricing can be extended to illiquid asset markets, although investment horizons will need to lengthen accordingly. D.E. Shaw, Point72, Millennium, and Jain Global collectively manage assets of over $195 billion. These platforms have established analytical capacity, technical systems, and governance architecture required to handle complex transactions and large-scale risk management.

D.E. Shaw is an early explorer in this space; this hedge fund, managing over $70 billion, launched its first private credit fund in 2008, initially focusing on energy sector financing. As Basel III forced banks to scale back proprietary trading and reduce risk on their balance sheets, the fund business gained room to expand. To date, D.E. Shaw has raised over $5 billion for these activities, including a new $1.3 billion fund established in May this year.

Jain Global has formed a new strategic transactions team led by Syril Pathmanathan, a former portfolio manager at D.E. Shaw. Reportedly, this team has focused on opportunities arising from regulatory or capital inefficiencies, expanding trades that relieve bank capital, and has raised about $600 million so far.

However, talent acquisition is not a panacea. Bergstrom points out:

“Companies need scale, leverage, and infrastructural support, which new entrants often lack. Returns in direct lending are highly dependent on the cost of financing, and financing capability is directly related to portfolio size, diversification, and industry experience. For newcomers, this presents a real disadvantage.”

Market Doubts and Risk Challenges Coexist

Opaque assets carry hidden risks. Recent high-profile bankruptcies of US auto parts companies First Brands Group and Tricolor have shaken the credit market. Millennium’s investment team led by Sean O'Sullivan wrote down its investment in First Brands, with expected losses of about $100 million.

Marcus Storr, Head of Alternative Investments at German hedge fund allocator FERI, remains skeptical about this strategic shift: “This seems to be a case of institutions chasing new concepts after excessive scale expansion. We believe this strategic shift lacks sufficient rationale.”

Bruno Schneller, managing partner at multi-family office Erlen Capital Management, points out that the skills public market credit managers rely on—speed, relative value analysis, skill with derivatives—do not fully align with the long-term relationship focus of private credit investing. The real challenge lies in culture and operations: can these institutions adjust incentives, decision-making processes, and talent structures to suit investment environments with return cycles spanning years rather than quarters?

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