"The 'unbuyable' hedge fund"
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In the history of hedge funds, the most valuable products are never "on the shelf," but remain internal to the fund company.
During the Simons era at Renaissance Technologies, there was a product called the Medallion Fund.
This product was managed long-term by the company's most capable mathematicians and quantitative researchers and was considered to have a consistently higher rate of return than Buffett. But after operating for a period, it gradually closed to external investors and became open only to internal staff.
The Medallion Fund's operational model gave outsiders their first intuitive sense of the special logic of the top fund world, as well as the true feeling of being "out of reach." When returns are stable, capital is not scarce.
Recently, another American quantitative investment giant launched a "special" hedge fund. Unlike most high-threshold products, this fund does not raise subscription amounts but chooses not to open to external clients.
This allows outsiders to closely observe: What does a top-tier fund that "can't be bought" actually look like?
External clients cannot participate
According to market reports: American quantitative investment giant DE Shaw recently launched a special new fund. The special aspect is that — external clients cannot participate.
According to public information, this fund mainly invests in the company's most capacity-constrained systematic equity and futures strategies. The sources of capital for this strategy are also very unique: about half comes from company employees, and the other half comes from within the DE Shaw's existing fund system.
DE Shaw was founded in 1988, headquartered in New York, and is one of the world's earliest quantitative hedge funds, as well as one of the industry's top institutions today. Third-party statistics claim its assets under management exceed $90 billion, and it is known for systematic investment strategies and multi-strategy portfolios. Its most capacity-limited internal products definitely draw attention.
Additionally, it's reported that DE Shaw has set a 4.5% management fee and a 45% performance fee for this "internal" fund. This fee level far exceeds the industry average, and is more than double the typical standard, highlighting its scarcity and special positioning.
Internal synchronous adjustments
Alongside the emergence of this internal fund, DE Shaw is making several adjustments to its existing product system.
Public information shows redemption cycles for two of the company’s core funds have been extended. For one fund, it takes around four years to fully exit, for another, about three years.
At the same time, the company has closed two relatively smaller multi-strategy funds and redirected the related capital to other main products.
The closure of several funds and the redistribution of capital coincides with the appearance of this new fund that is not open to external investors. The adjustments to the product system seem more like systematic management of capital allocation and strategy scarcity.
What a 45% performance fee means
Although limited information has been disclosed externally, many details are still worth pondering.
For example, public information shows the fund’s general management fee is 4.5%, and the performance fee is 45%.
By comparison, the traditional hedge fund fee structure is often referred to as "2+20," meaning a 2% management fee and 20% performance fee. The 45% rate is more than double the standard fee, almost the highest in the industry.
The common rule in asset management is that fees must match returns; so the willingness to propose a 45% performance fee is not only a sign of the management company's confidence in its product strategy, but also hints at the strong pursuit of such strategies by outsiders. Certainly, strategy capacity is also an important factor.
The “Party A” mindset of top asset management institutions
The existence of this product also fully reveals the "unwritten rules" of top overseas asset management markets.
Here, money is far from the most important thing. Good products not only meet the company's commercial needs, but are also tools for "consolidating" strategic resources.
For example, according to public information, about half the capital in this internal fund comes from DE Shaw employees, with the rest allocated from the company's existing fund system. External investors cannot participate at all.
This arrangement implies the company's internal priorities: employees first, long-time clients second, new clients? Sorry!
Truly scarce resources are reserved for insiders first. Even if external clients can afford it, they must queue up, and may not even get in. DE Shaw's arrangement for this internal fund gives an intuitive sense for the first time of the "game" inside the world of top hedge funds.
Potential “golden handcuffs”
The above information also shows that in the overseas hedge fund world, fund firms are increasingly inclined to attract clients by offering employees unique internal investment opportunities.
This certainly highlights the importance placed on talent, but in some sense, also means the company's measures for retaining talent are becoming more systematic.
It’s easy to see that employees are no longer just the company’s hired help; they are also management participants, and even important clients. This makes the relationship between employees and the company increasingly complex.
On the positive side, as fund returns grow, employees can not only get bonuses, but also directly share in profits through fund units.
But conversely, if fund performance falters, employees not only face shrinking bonuses and lower pay, but must also bear declining investment returns. This chain reaction may not be something to encourage.
Capacity boundary needs expansion
Behind these arrangements is another phenomenon worth noting: for certain specific investment strategies, more capital is not necessarily better.
Some industry insiders point out that when capital scale reaches a certain level, the effectiveness of some strategies may be affected.
Therefore, instead of continuing to expand scale, some institutions prefer to control sources of capital and prioritize internal needs.
But from another perspective, as managers, seeing strategies increasingly approach their capacity boundaries is not a sustainable solution. Achieving breakthroughs in technology, efficiency, and investment is the long-term answer.
Risk warning and disclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. Investment based on this is at your own risk. ```