• JPMorgan's Highbridge Capital believes investors want more specialized hedge funds, so it is shutting down its $2 billion multi-strategy flagship fund.
• Three of the four lead portfolio managers will stay on to the run the new multi-strategy credit fund.
• More hedge funds were liquidated than launched last year, as new funds were at their lowest levels in 18 years, according to Hedge Fund Research.
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JPMorgan's Highbridge Capital is winding down its long-running $2 billion multi-strategy fund and will now focus on its credit business. 

The fund, which invests across fixed income, equity, macro, credit, and other asset classes, will give investors the opportunity to invest in Highbridge's new multi-strategy credit offering or get their money back by the end of the third quarter, a JPMorgan spokesperson confirmed. 

Three of the fund's four lead portfolio managers will run the new credit fund, including Mark Vanacore, the multi-strategy fund's chief information officer. The portfolio manager leaving the firm, Arjun Menon, will start his own Asia-focused fund that Highbridge and JPMorgan supports, a source familiar with the firm told Business Insider. 

The two portfolio managers that led the credit arm within the multi-strategy fund, Jason Hempel and Jon Segal, will stay on with no changes to their team. 

Read more: A $10.5 billion fund at Canyon Partners has loaded up on cash amid a shaky stock market

The change was forced by investors' preference for more specialized strategies over the firm's broad multi-strategy offering, a JPMorgan spokesperson said. 

"As markets and clients evolve, we continue to innovate and examine our alternatives offering to ensure we deliver the solutions clients want and need today and into the future," the spokesman said.

Highbridge isn't the only major fund to shut down in the past several months. More hedge funds were liquidated than launched last year, as new funds were at their lowest levels in 18 years, according to Hedge Fund Research.

The billionaires Leon Cooperman and David Tepper in the past eight months have both announced plans to turn their long-running hedge funds into family offices. BlueMountain Capital Management has responded to investors' demand for more specialized funds by axing its long-short equity and systematic stock-picking funds to focus on the credit strategies the firm made its name in. 

Highbridge Capital was founded more than 25 years ago by the billionaires and childhood friends Glenn Dubin and Henry Swieca. JPMorgan bought a majority stake in the manager in 2004 and then acquired the rest of the firm in 2009. 

Read more:Billionaire Steven Schonfeld poaches a top quant from Glenn Dubin's Engineers Gate to run a new fund

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• At BattleFin's two-day conference in New York last week, 150 alternative-data companies jockeyed for the attention of data buyers from hedge funds like Credit Suisse's QT Fund, ExodusPoint, Millennium, and Third Point. 
• As hedge funds seek out new ways to beat the market, they're increasingly looking to alternative-data providers that offer obscure insight into companies not found in filings and earnings calls.
• The once under-the-radar role of data buyer has become more important than ever because they control the purse strings for a $7 billion industry. 
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Roberto Jedreicich gets to the point.

The decision-maker on all things alternative data at Credit Suisse's internal $650 million quant fund, QT, is flooded with pitches and meeting requests from new data vendors on the average day. But last week, at BattleFin's Discovery Day in the opulent Plaza hotel in New York, it was more of a tsunami than a flood — he had 30 official 20-minute meetings in two days and dozens of unofficial ones.

So, with limited time, he listened to these companies' abbreviated histories — how many graduate degrees their founders have, which obscure countries they have real-time data on — and started with one simple question: How does this help me and my fund? 

"I can tell pretty much right away which ones I'm interested in, and they'll know right away if I'm interested," he said in between meetings. Business Insider trailed Jedreicich over the course of a few days at BattleFin, a conference designed to match up companies that provide alternative data with buyers of that data.

Read more: Pricey data, slashed fees, and poor returns are hurting hedge funds' margins —and some are getting in the business of helping their rivals

Whether it's satellite images, credit-card transactions, or information scraped off the web, the collection of obscure data known as alternative data, which is used for investment purposes, is a growing business. A Deloitte report pegged the alternative-data market to surpass the $7 billion mark by 2020.

Data buyers like Jedreicich control the purse strings for the billions of dollars hedge funds plan to spend on this type of information. Data buying wasn't always the sexiest of roles, but as hedge funds seek out new ways to beat the market, they're increasingly looking to alternative-data providers that offer insight into companies not found in filings and earnings calls.

A sampling of the companies at BattleFin that were trying to pitch data buyers included: Zillow, the real-estate database with millions of listings; the Amsterdam-based CGLytics, which consolidates and analyzes corporate governance practices for managers with a social-impact focus; and PatSnap, a company focused on data found in new patents and research from the tech world. 

Jedreicich is Credit Suisse's one-man alternative-data team, a data veteran who has done stints at hedge funds, Deutsche Bank, and Merrill Lynch. With a data-buying budget in the millions, Jedreicich does not have a data-science or quant background. He broke into finance in Solomon's fixed-income department in the early 1990s but didn't get really involved in alternative data until his eight-year stint at Izzy Englander's Millennium, starting in 2008. He joined Credit Suisse last summer from Schonfeld Strategic Advisors.

The data-buying community is small but growing. At BattleFin, which had more than 1,000 registered attendees, Jedreicich and his peers were the center of attention.

A legal battle between Millennium's WorldQuant arm and its former data buyer Matt Ober a couple years ago showed how much funds are ponying up for the best data finders. WorldQuant had sued Ober, alleging a breach of contract because he began working for Dan Loeb's Third Point before his noncompete ended, and the lawsuit showed that Third Point was paying Ober an annual salary of $2 million. 

And now that coders have more data to play with, new startups are popping up in the alternative-data arena all the time.

It's the job of Jedreicich and his competitors to figure out which ones actually provide anything of value and which ones would just add to the data overload many hedge funds are battling. 

2 days, 30 dates

Shopping for alternative data isn't like going to the grocery store. Jedreicich is not running down some predetermined list of things he wants to buy.

Instead, he and his competitors at hedge funds like Third Point, ExodusPoint, and Balyasny Asset Management, want anything that can provide alpha — investment returns that an investor wouldn't get from an index fund that is simply mimicking the broad market. 

"My focus is bringing in alpha to the firm, everything else is second," he told Business Insider. 

Out of 100 data providers that pitch him, five to 10 get actual contracts.

"If it has alpha, we'll buy it, no matter what is, no matter how old the firm is," he said.

Read more: Hedge-fund managers are overwhelmed by data, and they're turning to an unlikely source: random people on the internet

Decked out in a fitted black suit, a matching T-shirt, and loafers with no socks, Jedreicich pressed the vendors with the same set of questions: How far back does your data go? What is pricing like? Can I run a trial with real-time data?

The last question can be tricky, he said after he finished scribbling vendors' responses on the back of business cards he just got. Not everyone likes giving away free samples after all.

"Some do [agree], some don't, but I always ask," he said.

He said he had been burned in past after backtesting historical data from a few vendors that his team found had predicted market moves before they happened. After signing a contract and ingesting real-time data, however, the investment signals disappeared, and Jedreicich thinks the historical data might have been tweaked to make the offering look more attractive. 

That's not to say he doesn't trust data vendors — in fact, he vouched for several companies in a quick lap around the exhibit hall, pointing out longtime players that he has worked with for years. RavenPack, a company based in Spain that uses natural-language-processing technology to quickly review earnings transcripts, political speeches, and more, has gotten several contracts from Jedreicich. 

Read more: Silicon Valley has made top data-science talent too expensive for many hedge funds, so they're getting creative to compete

But with any rapidly growing business, there are people looking to make a quick buck.

"It's not snake oil, but there are a lot of datasets that have no value," he said.

He wasn't handing out contracts at BattleFin. Jedreicich, if he liked a pitch, would invite the vendor to his office to meet with his chief research officer and some of his quants. From there, the backtesting of the data can take months, and he often likes to have a monthlong trial with real-time data before signing a contract.

He also asked prospective partners if other quant funds were clients. In an ideal world, the data vendor would have a few quants already signed on but not too many, so Jedreicich feels comfortable that someone else in the industry sees value in the data, but the trades generated from the data haven't become too crowded yet.

From boxed lunches to gold-trimmed plates

A lot of the alternative data for sale now didn't exist two or three years ago, Mike Marrale, the CEO of the alternative-data company M Science, said. The explosion in growth was easily visualized at a BattleFin, where just a couple years ago, attendance was a fraction of what it was last week, and lunch came in a box. On Wednesday and Thursday last week, catered lunches of farro salads and pasta were eaten off plates with gold trim. 

Vendors ponied up at least $3,000 just to attend, though many paid close to $10,000 in order to get a table in the exhibit hall. Data buyers, meanwhile, paid roughly $2,000. 

While the pace of innovation helps hedge funds get the latest and greatest, it can make pricing conversations difficult: How do you charge for something that's never been sold before?

"A lot of folks out there, they're trying to sell the first telephone," said Barry Star, the CEO of the 16-year-old alternative-data company Wall Street Horizon, which tracks corporate events. 

Read more: A growing alternative data company helps hedge funds determine if CEOs are lying using CIA interrogation techniques

Many people, Jedreicich said, think they have "million-dollar ideas. No one actually has a million-dollar idea."

"I don't like insulting the vendor, but I know what it's worth," he said. Satellite data, one of the most well-known forms of alternative data, is something he has never bought because it's too expensive and difficult to digest.

Still, budgets are growing at every firm, and hedge funds need to take chances on datasets that are unorthodox, Chris Petrescu, the head of data strategy at ExodusPoint, said.

"You need to take risks and take chances to stay competitive with others," he said on a panel.

Read more: Hedge funds are watching a key lawsuit involving LinkedIn to see if they can spend billions on web-scraped data

Longtime data buyers say that vendors initially ask for prices they'll never pay because there are so many new companies looking to buy this type of information. At BattleFin, there were panels and educational sessions targeted at how corporations can use different types of alternative data to become more efficient.

"There's a lot of newcomers in the buyer space," said Tom Liu, the CEO of ChinaScope, a data company that consolidates, translates, and analyzes Chinese media reports for Western companies.

"There's a lot of people at the edge of water beginning to wade in," he added.

That won't stop a lot of the startups that paid thousands to BattleFin from fizzling out though, Star said.

"Next year, 50% of them won't be back," he added.

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• Greg Coffey, the former star trader at GLG Partners and co-chief information officer of Moore Capital, is nicknamed the "Wizard of Oz."
• His new fund returned 6.9% year to date through the end of May, according to a private database viewed by Business Insider. That beat the average macro fund over the same period.
• Kirkoswald Capital, named after the Australian street Coffey has a house on, launched last year in London and has since moved its trading desk to New York. 
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The hedge-fund world's "Wizard of Oz" has gotten off to a promising start in 2019 despite a tough environment for macro managers. 

Greg Coffey — the former star trader at GLG Partners and Louis Bacon's co-chief information officer at Moore Capital — saw his new fund, Kirkoswald Capital, return 6.9% year to date through the end of May, according to a private database viewed by Business Insider. 

The average macro fund returned 2.7% over the same period, while the average hedge fund returned 5.3%, according to Hedge Fund Research data.

The fund posted a 1.1% return in May, while the average hedge fund fell 1.5%, according to the data. Kirkoswald, which focuses on emerging markets, has more than $1 billion in assets. 

The firm declined to comment. 

Read more: JPMorgan's Highbridge Capital is unwinding a $2 billion fund and now turning to investor demand for credit

Coffey returned to the game in 2018 after taking six years off from investing to spend more time with his family in his native Australia. It was then reported last year that he was moving his firm's trading desk from London to New York, partially because of Brexit's influence on London's role as a top financial center. 

Coffey's star was made at GLG Partners before the financial crisis as a macro trader, after which he joined Louis Bacon's Moore Capital in 2008. He ran two emerging-markets funds there but failed to replicate the level of his GLG success and retired after four years at the age of 41. 

When reports first surfaced that Coffey was coming back to start his own fund, $2 billion was the amount floated as the target he was trying to raise. But investors were wary because of his time off from trading, according to Financial News. The billionaire Bacon however supported Coffey both through his fund and personally, according to reports. 

Investors have been disinterested in macro funds, despite the solid performance. A recent report from eVestment found that investors pulled $6.2 billion from macro funds in May and $12.1 billion for the year. 

Read more: Here are the hedge-fund managers to watch in 2019 as the industry battles poor performance

SEE ALSO: Hedge funds’ secret sauce is obscure data like satellite images. Here’s how the people in charge of spending millions on this data find the stuff worth buying.

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• Gabe Plotkin's $7 billion Melvin Capital has notched returns over 35% through May, sources say, after finishing last year down 7%.
• Plotkin's fund, which was launched at the end of 2014 with a $200 million seed from his former boss Steve Cohen, invests primarily in the tech and consumer sectors.
• Plotkin said at May's Sohn Investment Conference that he has also been able to make money on his shorts, and said he was skeptical of shopping mall REITs and Tesla. 
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One of the top hedge funds this year is Melvin Capital, a $7 billion long-short equity fund managed by Gabe Plotkin.

The fund has returned more than 35% this year through the end of May, sources say, bouncing back from a disappointing 2018 when the fund lost 7%. 

Plotkin, who was once one of Steve Cohen's top money-makers at SAC Capital, launched his fund at the end of 2014 with a $200 million seed investment from his billionaire boss. He reportedly ran a portfolio of more than $1 billion while at SAC, and his current fund focuses on the same sectors — tech and consumer — that he invested in under Cohen.

The firm declined to comment. Melvin's performance was previously reported by industry publication Institutional Investor. 

See more: A $10.5 billion fund at Canyon Partners has loaded up on cash amid a shaky stock market

Filings show that Plotkin's top holding is Netflix, and he also large positions in Nevada-based resort chain Las Vegas Sands and payment processor Worldpay. At the Sohn Investment Conference in New York, he told attendees that he has an "intense focus" on the short side of his portfolio, naming Tesla and mall REITs as securities he is bearish on. 

Last year, it was uncovered that Plotkin made a $400 million bet against Nintendo's stock. 

The fund has grown its assets rapidly as well during a time frame when hedge funds have fallen out of favor. Less than two years ago, Melvin managed roughly half of the assets it has today.

The 35% mark the firm has notched so far easily outstrips the average hedge fund, which has returned 5.3% through May, as well as the overall market, which has gone up 9.8% in the same time period. 

See more: Multi-billion-dollar hedge fund manager Daniel Sundheim is pumping up Netflix, but dismisses the Canadian pot industry

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• The 10th edition of Anthony Scaramucci's SALT conference brought nearly 2,000 people to Las Vegas' Bellagio hotel this week and diverted from its prior focus on just hedge funds.
• Politicians, not hedge fund managers, were the big-name speakers, and the investing community in attendance was geared more toward the buzziest topics of the day, like so-called opportunity zones, cannabis, and crypto.
• For more stories like this, visit Business Insider's homepage.

LAS VEGAS — Missing from Anthony Scaramucci's SALT conference speaker list this year were the hedge fund titans who have headlined the conference in the past, like the billionaires Steve Cohen and Bill Ackman.

Marc Lasry, the Avenue Capital founder, was a late scratch from the agenda, as he chose to watch the NBA team he owns, the Milwaukee Bucks, instead of flying to Las Vegas. And of the 23 featured speakers at the conference this week, fewer than half are current investors.

The Las Vegas conference this year, its 10th edition, instead expanded beyond its hedge fund roots, vacillating between panels on buzzy topics like cannabis, so-called opportunity zones, and crypto, and talks from former confidants of President Donald Trump, like Chris Christie, John Kelly, and Jeff Sessions.

The shift away from hedge fund headliners comes as the industry is struggling with performance issues. Even as funds gained an average of 5.4% in the first quarter, nearly $15 billion left the industry in the period, according to eVestment.

See more:Billionaire real-estate investor Sam Zell says now is 'the time to accumulate capital' for future real-estate buys as a glut approaches

Held at the sprawling Bellagio resort and casino, with extensive security — replete with bomb-sniffing dogs — sectioning off the conference from the slot machines, the blowout brought together an eclectic mix of politicos, advisers, hedge fund managers, and cannabis-producing CEOs in the return from its one-year hiatus. Last year, Scaramucci, briefly a White House communications director under Trump, didn't hold the conference as a Chinese conglomerate was in talks (that later collapsed) to buy his firm, SkyBridge Capital.

A partisan nonpartisan event

SALT describes itself as nonpartisan, but the conference featured a heavy tilt toward Scaramucci's former employer.

While the Obama administration alums Susan Rice and Valerie Jarrett made appearances, the loudest panelists were Trump supporters like Christie, while conservative media figures like Charlie Kirk could be seen doing live shots on one of several balconies overlooking poolside cabanas.

The biggest talks at the end of both days were with Kelly, Trump's former chief of staff, and Nikki Haley, the former UN ambassador. Even on the smaller stage, Trump-connected people like David Bossie, Stephen Moore, and Corey Lewandowski made appearances.

A midday conversation among Christie, Sessions, and MSNBC's Stephanie Ruhle was standing room only.

Still, the biggest cheers were not for either party but general anger at both sides — sentiments expressed by Sam Zell and former Countrywide Financial CEO Angelo Mozilo, who implored people to call their representatives to get politicians working for them.

Stays in Vegas

But despite the lack of hedge fund star power, the conference had the second-highest attendance in its history, with nearly 2,000 attendees.

One longtime attendee from a fund said it had gotten harder for investors to persuade compliance to let them come to Vegas for conferences, opening the door for more people from cannabis, bitcoin, and technology to fill the void.

David Bahnsen, a wealth adviser who said he had been to nearly every SALT conference, said it was easily the youngest crowd he had seen, something he attributed to the shift in focus to the buzziest investment topics of the day.

When you attend SALT, one longtime attendee said, you're there for more than just catching up with investors.

"You go to see famous people walking around, and they nailed it," this person said, mentioning that he had just bumped into Mark Cuban taking a selfie with a couple of fans.

You can meet investors at any conference, this person said, but the chance to rub shoulders with celebrities is what makes SALT big.

But with hedge funds' margins shrinking, it can be a hard pitch to get the OK to come to a conference in a Vegas casino rather than one at a Dallas convention center, another attendee said.

"You never know who is going to wake up the next morning here," this person said on a balcony overlooking one of the Bellagio's many pools.

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• Gabe Plotkin's $7 billion Melvin Capital has notched returns over 35% through May, sources say, after finishing last year down 7%.
• Plotkin's fund, which was launched at the end of 2014 with a $200 million seed from his former boss Steve Cohen, invests primarily in the tech and consumer sectors.
• Plotkin said at May's Sohn Investment Conference that he has also been able to make money on his shorts, and said he was skeptical of shopping mall REITs and Tesla. 
• Click here for more BI Prime stories.

One of the top hedge funds this year is Melvin Capital, a $7 billion long-short equity fund managed by Gabe Plotkin.

The fund has returned more than 35% this year through the end of May, sources say, bouncing back from a disappointing 2018 when the fund lost 7%. 

Plotkin, who was once one of Steve Cohen's top money-makers at SAC Capital, launched his fund at the end of 2014 with a $200 million seed investment from his billionaire boss. He reportedly ran a portfolio of more than $1 billion while at SAC, and his current fund focuses on the same sectors — tech and consumer — that he invested in under Cohen.

The firm declined to comment. Melvin's performance was previously reported by industry publication Institutional Investor. 

See more: A $10.5 billion fund at Canyon Partners has loaded up on cash amid a shaky stock market

Filings show that Plotkin's top holding is Netflix, and he also large positions in Nevada-based resort chain Las Vegas Sands and payment processor Worldpay. At the Sohn Investment Conference in New York, he told attendees that he has an "intense focus" on the short side of his portfolio, naming Tesla and mall REITs as securities he is bearish on. 

Last year, it was uncovered that Plotkin made a $400 million bet against Nintendo's stock. 

The fund has grown its assets rapidly as well during a time frame when hedge funds have fallen out of favor. Less than two years ago, Melvin managed roughly half of the assets it has today.

The 35% mark the firm has notched so far easily outstrips the average hedge fund, which has returned 5.3% through May, as well as the overall market, which has gone up 9.8% in the same time period. 

See more: Multi-billion-dollar hedge fund manager Daniel Sundheim is pumping up Netflix, but dismisses the Canadian pot industry

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• Hedge funds got out to a roaring start in 2019, but have slipped since, with the average fund underperforming the overall market.
• Investors, many of whom put up with net losses in their hedge fund portfolios last year, have been pulling money by the billions. 
• More hedge funds were liquidated than launched in the first quarter of the year, the third quarter in a row that has happened, and this year has lacked the mega-launches that dominated last year's headlines. 
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The $3.2 trillion hedge fund industry is not having a good time so far this year. 

While investors going into 2019 were optimistic about their hedge fund portfolios, the industry's underperformance — returning 5.3% on average through May compared to the S&P returning nearly 10% during the same time — has led to more than $25 billion in redemptions, according to data tracker eVestment. 

These poor returns have coincided with investor demand for lower fees and increased transparency, simultaneously pushing long-time players out of the space while raising the bar for new entrants. 

"The industry is enduring a consolidation drive primarily by the ability, or inability, of managers to produce returns in-line with investor expectations," according to an eVestment report. 

Aspiring hedge fund founders have not been encouraged to try their hand as more hedge funds were liquidated in the first quarter than launched, according to Hedge Fund Research. It was the third straight quarter the total number of funds have declined.

See more: JPMorgan's Highbridge Capital is unwinding a $2 billion fund and now turning to investor demand for credit

Unlike last year, 2019 has not matched big-name liquidations with big-name launches. Billionaire David Tepper is returning outside capital as he shifts his well-known hedge fund, Appaloosa, into a family office. However, there are no launches yet scheduled for this year to match the assets or hype of Michael Gelband's ExodusPoint or Daniel Sundheim's D1 Capital Partners going live last year.  

So far, the biggest expected launches this year are coming from Citadel alumni, like Jack Woodruff, Mike Rockefeller, and John Graham, the biggest of which — Woodruff's coming fund and Rockefeller's Woodline Capital —are expected to launch with roughly $1 billion. Last year, Gelband set the record for the biggest launch with $8 billion. 

For new launches to be successful, significant day one assets are needed, even for managers with the best connections.  A recent report by Goldman Sachs' prime brokerage desk found that hedge funds with less than $250 million had less than a 50-50 chance of surviving their first three years of trading. Meanwhile, those that start with more than $1 billion in assets are able to make it past the three-year mark 84% of the time. 

See more: A $10.5 billion fund at Canyon Partners has loaded up on cash amid a shaky stock market

Still, industry giants expect the ongoing consolidation to continue. Billionaire Stan Druckenmiller said that there's only five to 10 people worth the fees hedge funds charge, and Oaktree Capital founder Howard Marks believes young investors don't have the same opportunities to start funds like he and others did decades ago.

"We need to get to back 200 or 300" funds, Druckenmiller said at a New York Economic Club event last month. 

See more: Inside the hellacious hedge fund money-raising environment, where 'even the big funds have to get creative'

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• Big names like David Tepper and Leon Cooperman have opted to close their hedge funds instead of transitioning their business to new management, but investors see more and more founders planning for their funds to live on without them. 
• Fund managers have built teams that invest across asset classes, which reduces reliance on the trading acumen of a single person.
• Succession planning can be harder than it looks. Bridgewater founder Ray Dalio told Business Insider he was stunned by the amount of work it took and shared what he learned about the process. 
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Hedge funds have long been nearly synonymous with their founders' strategies and personalities, but investors are now looking closely at firms' plans to carry on without their creators at the helm.

Investors say more and more funds should be able to survive a leadership transition. But Ray Dalio, founder and cochief investment officer of Bridgewater, the world's largest hedge fund, told Business Insider it was hard for him to pinpoint how long his succession planning would take. 

"When I began my succession process, I thought it was going to take me probably about two years. But when I say I thought that, I also knew not to believe that," said Dalio on a recent episode of Business Insider's "This Is Success" podcast.

As founders age and the hedge fund industry matures, succession planning is a critical question for investors and potential fund employees. Many of the biggest funds have evolved beyond simply managing one portfolio and now offer a range of services, which makes it more plausible for a successor to take charge. 

"They're companies, they're small corporations, they're not one PM with an analyst running a single portfolio," said Darren Wolf, global head of alternative investment strategies at Aberdeen Standard Investments. "They're set up to be evergreen structures way beyond a single PM."

See more: Billionaire investor Stanley Druckenmiller says there should be only '200 or 300' hedge funds, not thousands — and he expects a culling of the herd

What remains unclear is exactly which fund managers will want their company to live on after they're done working.

Several big-name managers opted to close shop in the last 18 months instead of turning over to a longtime lieutenant. Billionaires David Tepper of Appaloosa Management and Leon Cooperman of Omega Advisors are converting their funds into family offices. Jason Karp closed Tourbillion and is now helping with his wife's organic chocolate company. John Paulson closed his London office recently, and hinted last year that he was close to transitioning his hedge fund into a family office.

But there have been some succession success stories. Farallon Capital is back at the assets under management it reached before founder Tom Steyer stepped down in 2012. Dallas-based HBK Investments has been successful despite the firm's founder and namesake, Harlan B. Korenvaes, retiring in 2003. Large quant funds like Renaissance Technologies and D.E. Shaw have ceded day-to-day control to lieutenants while founders James Simons and David Shaw focus on research and other passions.

"An increasing number of hedge funds can absolutely handle a succession," said Joseph Burns, head of hedge fund due diligence for iCapital Network, because they are diversified asset managers with venture capital and private investment arms.

Still, giving up a business you started and grew isn't easy, something Dalio found out when he tried to transition out  role at Bridgewater, only to step back in when his replacement, Greg Jensen, was overloaded with top investment and management responsibilities.

Bridgewater is currently run by Co-CEOs David McCormick and Eileen Murray, while the Dalio, Jensen, and Bob Prince all share the CIO role.

'Go out and hire a replacement'

Legendary hedge fund manager Julian Robertson drew investors in because of his personality and strategy. Naming a successor for Tiger Management would have made a lot of existing investors uneasy, according to research from Sandy Gross at executive search and coaching firm Pinetum Partners, but the seeding of his proteges' funds let investors know who he backed without forcing them to make a decision about staying with Tiger under a new leader.

But more recently, Gross found in interviews with senior hedge fund personnel that mega-funds are expected to continue beyond the founder. One unnamed COO told Gross that "there is an expectation we live beyond our founders" today, and not close down just because the founder is ready to retire.

"There are plenty of geniuses on Wall Street, so it shouldn't be hard to go out and hire a replacement," an unnamed hedge fund CFO told Gross.

See more: A bunch of hedge fund managers featured in 'The Big Short' are among the casualties of Citadel's most recent cuts

Wolf said Aberdeen goes into hedge funds "wanting to be invested for a long time."

"We do a lot of due diligence before making an investment, so we want to amortize that time and cost across a long period of time," he said.

Well-known platforms like Point72, Millennium, and Citadel are inherently tied to their billionaire founders, but are made up of hundreds of investment teams and professionals who often operate autonomously. For investors, this structure is viewed as a strength.

"We don't like to see too much of the talent concentrated at the founder level," Wolf said.

Bridgewater's Dalio said that anyone thinking of going down the succession path to should allocate plenty of time. He figured the process would take two years, but gave himself 10, he said on the podcast.

"If you haven't done something three times before successfully, don't bet on your ability to do it," Dalio said. 

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• The CFA Institute released new performance-reporting standards on Tuesday, and the $3.2 trillion hedge fund industry will have to decide if it wants to opt in to the updated rules.
• Industry watchers say reporting guidelines would help crack down on managers warping returns with cherry-picked stats.
• The standards for a manager to claim compliance require hedge funds to be more upfront about past performance even if a strategy has closed or been changed. 
• "Hedge funds are salespeople, they want to raise assets and maintain assets," said Jon Caplis, founder of PivotalPath, a performance database used by hedge fund investors. 
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Hedge fund performance has been underwhelming. An influential professional organization has overhauled its reporting standards in order to bring more funds into the fold, but adoption would force portfolio managers to give up tactics to make returns look better. 

The notoriously opaque hedge fund industry has never widely adopted any broad guidelines for calculating performance figures. Managers can overstate returns by selective reporting, observers say, and many are supportive of centralized, transparent rules.

It's another example of the transformation the once-niche industry has made into a more institutional business, with pensions and endowment investors now limiting the big, concentrated bets funds used to be famous for taking as the bar continues to be raised for new launches. 

See more: Hedge funds went from a niche market to a $3 trillion titan, but became a victim of their own success thanks to their biggest investors

The CFA Institute released its 2020 Global Investment Performance Standards on Tuesday that will take effect on Jan. 1. The new standards are designed to appeal more to hedge funds and other alternative asset managers, and differ from existing guidelines, by allowing managers to report performance for individual funds without having to disclose firm-wide performance, said Karyn Vincent, head of global industry standards at the CFA Institute.

The current guidelines, which went into effect in 2010, were not widely adopted by hedge funds, Vincent said, and making the standards more flexible and appealing for more types of managers was a guiding factor in crafting the next iteration. 

Funds have been able to overstate returns using tactics like giving net performance figures on assets held by the founder that aren't charge fees, or only reporting performance in a closed-off fund for select investors instead of an overall performance figure, wrote Don Steinbrugge, who runs hedge fund consultancy Agecroft Partners, in a recent paper. 

"Today, there is no consistency across the hedge fund industry in how net performance is calculated and presented. There is some consistency in performance and risk disclosures, but they provide very little clarity. Most disclosures offer worst-case scenarios as hedge fund law firms seek to limit their client's liability," the paper from Steinbrugge reads. 

See more: Bridgewater's Ray Dalio struggled with finding his successor. For billionaire hedge funders, it's a growing concern.

Hedge funds have been less restricted in how they could market themselves since the JOBS Act passed in 2012, and industry observers say they have also been even more aggressive in selectively picking performance numbers.

"Hedge funds, after all, are salespeople, they want to raise assets and maintain assets," said Jon Caplis, founder of PivotalPath, a service that provides performance data for hedge fund investors. While Caplis and others don't believe managers often lie outright about performance, the lack of standard reporting means they can take measures to make returns look as good as possible. 

"I believe there's a significant problem with cherry-picking performance in the industry," said Dev Kantesaria, founder of $450 million hedge fund Valley Forge Asset Management. 

Big managers may offer increasingly popular"funds-of-one" for big investors along with their main fund that have different fee structures and investments. Steinbrugge says it should be clear to investors if performance is radically different between separate structures in the same strategy.

While many funds agree in principle that some type of standard for performance reporting is needed, Kantesaria said the hard part will be reaching an industry-wide agreement on how enforcement should be overseen. Some funds may prefer a regulator like the SEC take up the issue, not an organization like the CFA Institute.

"And in the end, if there is agreement on someone to run, you've got to get a lot of people who are pretty protective of their information to share it. It won't be easy," Kantesaria said. 

See more: Hedge funds are failing left and right and billionaire investors say the carnage has only gotten started

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• New alternative data companies are popping up everyday, and hedge funds are getting overwhelmed by choice. Some have developed a way to evaluate data more quickly.
• Two hedge funds, Balyasny and WorldQuant, have built online portals where sellers can plug in their datasets. The fund managers then quickly relay what data they find valuable.
• While the process saves hedge funds time, some sellers believe that the lack of human touch will cause funds to miss out on valuable datasets.
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Hedge funds are trading on unconventional data like satellite images and corporate air travel trackers to gain a competitive edge, but picking out useful information is getting harder as data vendors multiply. Funds like WorldQuant and Balyasny want to streamline that process.  

So they set up online portals — called Data Exchange at WorldQuant and Antenna at Balyasny — to let sellers upload data and get quick feedback on what's valuable for the funds. 

"This is a real transparent way to show our vendors 'here's what we are looking for,'" said Carson Boneck, chief data officer for Balyasny. 

"You're going to be put at the top of the queue if Antenna identifies something of value."

See more: Hedge funds' secret sauce is obscure data like satellite images. Here's how the people in charge of spending millions on this data find the stuff worth buying.

Hedge funds are fighting tooth and nail for every basis point of performance. And the entire industry — including quant firms and traditional stock-pickers — is planning to spend billions on alternative data, which has sparked an explosion of new providers. 

After a year where the average hedge fund lost money, 2019 has been kinder to hedge fund managers, with the average fund posting a 7.6% return through the end of June, according to Hedge Fund Research. This figure however trails the overall market and has not stopped investors from redeeming tens of billions of dollars this year.

Hedge fund managers have traditionally found interesting data sets through data-buyers who attend conferences like BattleFin, but the volume of new data providers and datasets has forced managers to come up with other approaches. The number of alternative data sellers has nearly quadrupled over the past ten years, up to 412 firms in 2018. 

"In sorting through all of these new vendors, we are trying to find a way to increase the probability that we find something our investors would value, and that would be useful for our portfolio managers and quants," Boneck said.

The quicker data can be vetted and integrated, the more useful that data is, portfolio managers say. An investment signal may disappear, or it can be picked up by others who crowd the trade. 

"You get a short-term advantage, but then it closes because everyone else catches on," said Dev Kantesaria, founder of $450 million hedge fund Valley Forge Asset Management.

'Data still needs human interaction'

Balyasny's Antenna is a quantitative review of the dataset that "isn't the end-all, be-all," Boneck said, but the program, which started at the beginning of 2018, "covers a lot of the initial bases."

"It certainly makes me more comfortable purchasing data when I know it's passed all of these objective tests."

See more: Hedge-fund managers are overwhelmed by data, and they're turning to an unlikely source: random people on the internet 

For some vendors in the still-new alternative data space, this type of review is helpful in pinpointing what their product is worth — especially since many companies are selling something that has never been sold before.

"In terms of pricing in the market, it's really all over the place," said Sarah McKenna, CEO of Sequentum, which builds software for managers to web-scrape data. "It's almost easier to have them bid then for us to state a price."

But some vendors are concerned a quant system might not be able to pick up on the intricacies of their datasets like a human would.

"Data still needs human interaction," said Zak Selbert, CEO and founder of Indexica, a company that uses machine-learning to review and analyze transcripts, media reports, public filings, and more.

Selbert said he understands why hedge funds want to streamline the data-review process, but warns that "a lot of funds would miss out on a lot of good data, if this spreads."

"My hope is that it's just a screening tool, and not a decider. Because if it's the decider, people will only ingest data that has this statistically predictive, immediate look to it, and not dive deeper into others."

See more: Pricey data, slashed fees, and poor returns are hurting hedge funds' margins —and some are getting in the business of helping their rivals

Boneck understands Selbert's and others' concerns, and said that "we're always going to need to go deeper into data."

Balyasny at the moment has no plans to white-label the Antenna algorithm for general use by other funds. There has been a growth in third parties that are running platforms with pre-vetted data vendors on it like Bloomberg and BattleFin, which recently rolled out a service called Ensemble.

This step will help clean up the space, Boneck said, but won't replace the vetting done by Balyasny and others.

"We're always going to need to test it ourselves."

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• Glenn Dubin and his wife, Eva Andersson Dubin, have been friendly with disgraced financier Jeffrey Epstein for decades.
• A Business Insider investigation revealed new ties between the Dubins and Epstein, including a letter from Eva Dubin telling Epstein's probation officer that he could be around their children ahead of Thanksgiving. 
• Before Epstein went to jail in 2008 for charges including procuring a minor for prostitution, he and Glenn Dubin invested millions in a hedge fund deal that went south, detailed by Business Insider for the first time. 
• After Epstein got out of jail, Eva Dubin set up a foundation so that Epstein could donate to her breast cancer charity without his name attached. 
• This is a preview of the full inside story on the ties between Epstein and the Dubins, which is available exclusively to BI Prime subscribers.

A prominent hedge fund manager and his model-turned doctor-turned philanthropist wife had longtime ties to disgraced financier Jeffrey Epstein – and their relationship didn't end when Epstein went to jail for prostitution in 2008. 

Instead, Glenn and Eva Dubin invited him to their home for a large Thanksgiving celebration in 2009, after he served 13 months in jail. Before the holiday, Eva Dubin wrote to Epstein's probation officer in an email obtained by Business Insider to say she and her husband were "100% comfortable" with Epstein around their children, including their then-teenage daughter. 

An investigation by Business Insider revealed that the billionaire Dubins, well known in New York and Palm Beach circles, had numerous financial, social, and philanthropic ties to Epstein. While the couple didn't end their relationship after Epstein went to jail in 2008, they're now trying to distance themselves from the sex offender. Through a spokesperson, they said that Eva Dubin had known Epstein for decades and thought he rehabilitated himself after his plea to charges including procuring a minor for prostitution. 

"The Dubins are horrified by the new allegations against Jeffrey Epstein," a spokeswoman said in a statement. "Had they been aware of the vile and unspeakable conduct described in these new allegations, they would have cut off all ties and certainly never have allowed their children to be in his presence."

The Dubins are the latest high-profile Wall Street family to come under scrutiny for ties to Epstein. Last week, Business Insider revealed that Epstein was the director of the private-equity guru Leon Black's family foundation from at least 2001 through 2012. The Blacks later said he resigned in 2007 and that they submitted erroneous tax forms for years. 

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• The former Bain & Co. and Sagard Capital executives Anil Shrivastava, Dan Friedberg, and Michael Braner are raising $400 million for a hedge fund called 325 Capital, sources told Business Insider.
• The fund will make big bets on small public companies, according to a description on its LinkedIn page, which says the founders have worked together for more than 20 years developing the approach. 
• Hedge-fund launches in 2019 have been few and far between and outpaced by liquidations. This year has also lacked the massive launches of 2018, when Michael Gelband's ExodusPoint and Daniel Sundheim's D1 Capital both began trading with billions in client assets. 
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After working on a hedge-fund strategy for two decades, Anil Shrivastava, Dan Friedberg, and Michael Braner are ready to set out on their own.

The former executives at Bain & Co. and, more recently, Sagard Capital are in the process of raising $400 million for their new hedge fund, called 325 Capital, sources told Business Insider. The fund plans to take big bets on small public companies, according to the firm's LinkedIn page, with an activist tilt. 

"We strive to collaborate with management teams and boards who are committed to driving long-term, fundamental value," the LinkedIn page reads. "As lead shareholders, we support our portfolio by working from deeply researched facts, acting as discrete advisors or constructive board members, providing access to a network of relationships, and providing direct growth capital."

Read more: The booming private market has some hedge funds spreading into private equity's domain. Now a tug-of-war has broken out over talent.

The firm declined to comment on when the fund would begin trading. Sources told Business Insider the fundraising process was still in early stages. LinkedIn pages for Braner and Shrivastava show that they say the company started in March of this year. Friedberg has not updated his page yet. 

This year has been a tough one for hedge-fund launches as the bar continues to rise for investors looking to go out on their own. Rising technology and compliance costs, as well as pricey data packages, have limited the pool of new funds, and more hedge funds have called it quits in 2019 than have launched. 

Shrivastava, Friedberg, and Braner all worked together at Bain & Co. from 1997 to 2003, their LinkedIn pages show, before Braner left to join JB Investment Partners as a partner. Braner then left for Sagard Capital, the private-equity arm of Sagard Holdings that Friedberg founded in 2005 and was joined by Shrivastava there in 2012. 

The $400 million fundraising target, if reached, would mark one of the bigger launches this year. So far this year, there are no reported funds in the pipeline that are anywhere close to the record $8 billion launch of Michael Gelband's ExodusPoint last year. 

Read more: Bridgewater's Ray Dalio struggled with finding his successor. For billionaire hedge funders, it's a growing concern.

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• As venture capital-funded companies get bigger, large investors outside of Silicon Valley like Fidelity, Wellington Management and T. Rowe Price are doing more funding in the last stage of private capital before a company goes public.
• Later-stage rounds often land investors large stakes at lower prices than might be possible if they waited for the company to go public.
• But there are some dangers that come as "tourist investors" pile in and big tech companies stay private longer. 

Five months after raising a $225 million funding round, robotic process automation startup UiPath announced another $568 million cash infusion that was led by hedge fund Coatue, with asset managers Wellington and T. Rowe Price also taking part. 

Hedge funds and asset managers aren't considered venture capitalists, angels or accelerators in a traditional sense. But UiPath is far from the only private tech company to attract these "tourist investors" so far this year— rounds with at least one tourist made up more than 70 percent of total 2019 deal value to date. 

Getting in on pre-IPO funding rounds can help investors profit off relatively low valuations and avoid heavy losses if a market debut flops. There are some dangers that come as tourist investors pile in and big tech companies stay private longer, though, including pushback from later investors when it comes to pricing the IPO, and the possibility of getting burned if private valuations turn out to be too rich. 

Marie Myers, chief financial officer at UiPath, told Business Insider that the company's management team was looking for investors who would give coaching and feedback as UiPath thought about life as a public company.

"We're at a critical stage of our journey," Myers said. "We've had several rounds of financing at this point of time and we're in a very high-growth stage. We're looking for folks that would stay with us for the entire journey and were willing to commit to the long haul."

Myers, who was just weeks into her tenure at UiPath when fundraising started, said she was caught off guard by how much interest there was from investors who wanted a stake in the company.

"There was just seriously overwhelming interest in this round," Myers said. "People found all different ways to reach us."

UiPath's April funding round was one of 322 late-stage US tech deals that involved tourist investors so far in 2019, according to PitchBook data, and the volume of late-stage tech deals that involve at least one tourist has skyrocketed.

Tourist investors participated in 421 late-stage rounds in 2008, for a total deal value of $7.9 billion, according to PitchBook. By 2018, they were part of 606 funding rounds, and total deal value shot up to $42.1 billion. 

"The companies that have proven their success and are growing quickly are very attractive to those investors," said Cameron Stanfill, an analyst with PitchBook. "Those are some of the companies where you see the valuations growing the quickest ... Investors are able to get a return boost by being in slightly earlier than the IPO."

The most active tourist investors include debt financers like Western Technology Investment and banks like Goldman Sachs, as well as the hedge funds and mutual funds that traditionally buy giant stakes when a company eventually goes public. Tiger Global Management and T. Rowe Price, for example, each made more than 90 investments since 2008. Fidelity has made 75 investments during that time period and Wellington Management made 59. 

Pre-IPO investing has also helped some investors avoid getting burned by post-debut tumbles. Lyft shares sank nearly 47% in the weeks following its $2.34 billion March IPO, but Fidelity's $808 million investment remained in the green.

The asset manager bought the majority of its shares during private funding rounds in the year before Lyft went public. So even though most other institutional investors bought their stakes at Lyft's $72 IPO price, Fidelity paid just a fraction of that a few months earlier.

Fidelity's investment worked exactly as planned — the firm turned a profit on an IPO where most of the money was made by the venture capitalists who kept things afloat during Lyft's 10 years as a private company.

Read more: Investors have seen triple-digit returns on some 2019 IPOs, but UBS think there are 2 key reasons it could cool by midsummer

So far in 2019, there were 994 late-stage funding rounds for US tech companies, with a total of $37.9 billion raised. Tourist investors participated in one third of those rounds, but rounds with at least one tourist investor made up 72% of the total value. Similarly, in 2018, rounds with some participation from tourists made up 35% of the deals and 72% of the deal value. 

This recent spike builds on a trend that emerged earlier in the decade. Coatue and T. Rowe Price both invested in Facebook before it went public in 2012, and unicorn startups like Lime, DoorDash, Instacart, WeWork, and Nextdoor all have taken money from these investors or their competitors.

But there's a costly downside 

Taking money from hedge funds and asset managers in private rounds may mean more friendly faces when management finally hits the road to pitch its IPO, but this can also lead to trouble in the process.

Uber CEO Dara Khosrowshahi was incentivized by a $100 million-plus bonus to get the company to a $120 billion valuation when it went public in May. 

When the IPO finally came around, though, some of the largest Uber shareholders pushed back against buying more of the company's stock at such a premium to what they had paid in earlier rounds, the New York Times reported in May. Uber's market cap is currently around $75 billion. 

In other cases, asset managers have been burned by startups that were more hype than hustle.

When data visualization company Domo when public in June 2018, it priced its IPO at $21 per share. It was a down round for the company, which was once valued over $2 billion, and ultimately went public with just a $600 million valuation.

For investors who bought on IPO day, it may seem like a discount. But not everyone was so lucky.

In the years leading up to Domo's IPO, BlackRock bought $434 million in Domo shares for $126.47 a pop — six times what the stock was worth when it finally went public.

SEE ALSO: Going public makes $12 billion CrowdStrike an anomaly in the crowded cybersecurity space where M&A is the norm. Here's why.

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• Faron Schonfeld, COO of the Citadel's global equities arm, and Brian Conn, a longtime portfolio manager, are both leaving Ken Griffin's firm, sources tell Business Insider.
• Citadel has wooed several money-managers from rival Point72 with large pay packages, according to a media report.
• Griffin's firm, which manages $32 billion, previously lost the leader of its stock-picking Aptigon business, Eric Felder, when the unit was closed earlier this year. Several portfolio management teams were reassigned to the global equities unit after Aptigon's closure. 
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Ken Griffin's Citadel is losing an executive and a longtime portfolio manager from its global equities business, sources tell Business Insider.

The departures come soon after a report that Citadel has poached money managers from a major rival — Steve Cohen's Point72. 

Brian Conn, a portfolio manager covering financials for the global equities business, had been at Citadel since 2006, according to his LinkedIn, and is leaving the $31 billion hedge fund for personal reasons, a source familiar with the situation said. 

An analyst on his team, Alex Ofsevit, has been promoted to fill his role.  Three other analysts in global equities — Cole Patterson, Karl Richter, and Mark Wienkes — were promoted to portfolio managers this year. 

"We are grateful to Brian for his contributions over the past nearly 14 years and wish him well," a Citadel spokesman said.

See more: Inside the Chicago hedge fund turf war between billionaire Ken Griffin and Dmitry Balyasny

Faron Schonfeld, the COO of the global equities business, is also planning to leave Citadel, sources said.

Schonfeld, according to his LinkedIn, has been at Citadel for more than four years after more than a decade at Accenture. A source close to the firm said Schonfeld's replacement has not yet been named, and that Schonfeld will stay on for an interim basis until his successor is determined.

Citadel's flagship fund was up 13.5% for the year through the end of June. A source said all five strategies were positive for the year, and that the two resignations were not related to performance. 

Citadel's global equities team grew significantly after the firm cut its Aptigon stock-picking unit earlier this year. 

Aptigon, which was run by Eric Felder, was shuttered just two years after launching, and the teams that stayed on at Citadel were spread across global equities, Ashler Capital, and Surveyor Capital. 

See more: A bunch of hedge fund managers featured in 'The Big Short' are among the casualties of Citadel's most recent cuts

Citadel has also been aggressively adding tenured money managers. According to the recent Wall Street Journal report, Griffin's firm has poached David Corwin and Justin Lubell — the latter of whom ran a $1 billion book focused on technology — from Point72. 

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• $19 billion hedge fund manager Lone Pine Capital categorizes companies as young disruptors,  disrupted, or "compounders" when deciding whether to go long or short.
• Young disruptors include recently IPO-ed companies that require a "high degree of creativity" to value them, Lone Pine Capital said in an investor letter seen by Business Insider. 
• "Compounders"— companies that Lone Pine considers undervalued — include World Wrestling Entertainment, Nintendo, and Tiffany & Co.  
• Lone Cypress and Lone Cascade, the firm's long-short fund and long-only fund, are both up around 24% for the year. The letter, dated July 15, also said fund-of-funds Lone Juniper closed July 10. 
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What do Nintendo, World Wrestling Entertainment, and Tiffany & Co have in common?

$19 billion Lone Pine Capital, a legendary stock-picking hedge fund, owns shares in all of them and sees "long runways" for their growth, according to a recent investor letter seen by Business Insider.

Lone Pine Capital has divided the market into three segments: young disruptors such as Beyond Meat; disrupted firms like banks, ad agencies and legacy technology companies; and "compounders"— like WWE and Tiffany. 

The firm is long the compounders, short the companies it considers already disrupted, and both long and short  young disruptors, according to the letter, and it thinks judgement about the overall market misses the "nuance of underlying extremes." 

Founded by Stephen Mandel in the late 1990s, Lone Pine Capital is one of the few hedge fund firms that does not focus on a specific industry or theme. Mandel — one of several "tiger cubs" who worked at Tiger Management before going on to run high-profile funds — stepped back from day-to-day portfolio management in January.

Through the end of the second quarter, both the firm's long-short fund, Cypress, and long-only fund, Cascade, are up roughly 24% for the year, according to the letter, versus roughly 7% for the overall market.  Lone Pine Capital declined to comment.  

See more: We got a copy of billionaire hedge-fund manager Seth Klarman's letter to investors — here are his 5 biggest warnings about the economy

The letter, signed by Mandel and managing directors Mala Gaonkar, David Craver, and Kelly Granat, said young disruptors almost always lose money, "sometimes lots of it," and that "expectations embedded in their share prices are high."

Companies the firm considers young disruptors include Wayfair, Sea, Chewy, Beyond Meat, Canopy Growth, and more. The letter said Lone Pine Capital is both long and short several such companies, though it did not list any specific investments. 

The disrupted companies meanwhile are facing challenges to their long-established models, and the firm is short many of those companies, the letter said. 

"Being right about the pace of decline is critical to shorting success here," the letter said. 

See more: A $10.5 billion fund at Canyon Partners has loaded up on cash amid a shaky stock market

Companies that fall under "compounders" have a proven business model now, but might have originally been a disruptor. "Examples include credit card networks, data analytics companies, Internet platforms, and vertical software leaders," the letter states. 

The firm is particularly interested in companies it believes fall in this category because "the power of the business platforms is often underestimated," despite being well-known and established. The letter named companies like Activision, Axis Bank, Melrose Industries, Nintendo, Shiseido, Tiffany, Union Pacific, and WWE.

Lone Pine Capital owns shares in all of those "compounders," and said each should improve profitability in the coming years through "overdue management actions" on costs, distribution, and products. 

The letter also said that the firm closed the  fund-of-funds known as Lone Juniper on July 10 after 19 years, and the person in charge of it, Frank Knapp, will take on a risk and analytics role on one of its other funds. 

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• Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, and $1.4 billion 12 West Capital Management are some of the hedge funds that are flying high so far this year. 
• Quants haven't exactly flopped, but they also haven't kept up with several funds making concentrated bets.
• Funds that have struggled include BlueMountain Capital and those making volatility bets.
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The market-beating human stock-picker is far from dead. 

Quant funds now dominate hedge fund flows and assets, but the biggest winners midway through 2019 are funds run by old-school investors who take large, concentrated bets. 

Systematic strategies haven't exactly flopped, and still attracted significant assets. But stock-pickers like Bill Ackman, David Einhorn, and Gabriel Plotkin turned in a blistering first half, proving the era of the star investor is not completely over. 

 The average hedge fund returned 7.58% through the first half of the year, according to HFRI. Keep reading to see which funds soared, which ones flopped and which ones were in between. 

Soared: Concentrated stock-pickers

After a rough 2018, Bill Ackman promised to "return to his roots," but his performance so far this year is something we have never seen before. 

The billionaire founder of Pershing Square posted returns of 45% through the second quarter, the highest mark ever for the fund in the first half.

Bouncing back from a year when "we didn't get anything right," Greenlight founder David Einhorn has posted returns of 17.4% through the first half of 2019. The noted Tesla short recently added long positions in three stocks: DuPont spin-off Chemours, department store Dillard's, and gambling company Scientific Games.

An under-the-radar big winner through the first half was 12 West Capital Management, a $1.4 billion hedge fund founded by Joel Ramin, a former analyst for Roberto Mignone's Bridger Capital.

Ramin's fund has returned 46.1% through the first half, according to an investor letter of a fund-of-funds that allocated money to 12 West. Filings show that the top 10 positions in Ramin's portfolio make up more than 90% of it. 

Flopped: Blue Mountain Capital

BlueMountain's flagship Credit Alternatives fund is down roughly 4% through the end of June, and the $18.5 billion manager has been under pressure to reassess its approach.

Affiliated Managers Group, an asset manager that invests in hedge funds like BlueMountain and AQR, said on a recent earnings call that it is working with BlueMountain to bring up its profitability by year-end. The firm has already cut strategies that it deemed unprofitable this year, like its long-short equity and systematic equity efforts. 

"As a multi-strategy asset manager, BlueMountain Capital Management continuously assesses and adjusts its investment and business strategies to address clients' needs, respond to changing markets and optimize performance," the firm said in a statement.

BlueMountain has hired 10 people over the last 12 months to focus on areas where the firm believes it can grow, according to a source close to the firm. These areas include fixed income, healthcare, infrastructure, and collateralized loan obligations. 

See more: BlueMountain's flagship fund is losing money so far this year even as the rest of the industry surges, and it's just the latest blow for the hedge fund

In between: Quants

Performance at well-known quant funds like Winton Group, Renaissance Technologies, and D.E. Shaw has not been bad this year, but it also hasn't reached the eye-popping returns they put up in the past. 

Renaissance's Institutional Diversified Alternatives fund is roughly flat through the second quarter. The better-known Renaissance International Equity fund is up 5.3%, but still below the average hedge fund and the broader market. 

Winton Group's eponymous fund has posted a return of 2.74% through mid-July as founder David Harding has rewritten the firm's quantitative models. D.E. Shaw's Composite fund, which includes discretionary stock-picking teams as well as quant strategies, is up roughly 6% for the year through the end of June. 

Systematica BlueMatrix fund, which runs more than $700 million, is down more than 6% on the year, an investor document showed. The firm declined to comment. 

See more: Inside D.E. Shaw's special relationship with Blackstone, which shines a light on the power the hedge fund industry's largest investors have

Soared: Proteges

Proteges like Philippe Laffont, Daniel Sundheim, Gabriel Plotkin, and Jimmy Levin had a great run in the first half of 2019. 

Past analysts at Julian Robertson's Tiger Management like Laffont of Coatue, Chase Coleman of Tiger Global, and O. Andreas Halvorsen of Viking Global Investors all notched returns in the teens or higher, and the next generation of Tiger Cubs also seem to be off to a good start.

Daniel Sundheim, who founded D1 Capital Partners last year after working at Viking,posted returns of nearly 20% through 2019's first six months, and Lone Pine Capital has not slowed down despite founder Stephen Mandel, a one-time Robertson analyst, stepping away from day-to-day portfolio management in January.

Gabriel Plotkin, founder of Melvin Capital and a former money-manager for Steve Cohen, has been one of the top managers this year, while Och-Ziff CIO Jimmy Levin led his flagship fund to a roughly 12% return.

See more: Inside D.E. Shaw's special relationship with Blackstone, which shines a light on the power the hedge fund industry's largest investors have

Flopped: Volatility seekers

Funds that put up big numbers during volatile times can run into trouble when things are calm. And, as a recent Wall Street Journal headline put it, markets are eerily quiet right now. 

Ionic Capital, a multi-billion-dollar fund founded by Highbridge Capital alums, has lost nearly 32% through the first six months of the year, according to an investor document. The firm's investment strategy is to go long on volatility through options in different asset classes, including commodities, equities, and credit. 

The firm did not respond to requests for comment.

Another well-known volatility fund, Artemis Capital,  lost 8.91% through the end of June in its $200 million Vega fund. 

"The goal of the strategy is to make large asymmetric gains during periods of crisis and volatility," a recent investor letter said. The fund, run by Christopher Cole, finished 2018 flat after posting a 3.15% return in December, a month marked by market turmoil that wiped out many hedge fund returns for the entire year.  

In Between: The biggest launch

Fewer hedge funds are launching and existing ones are cutting their fees. Still, Michael Gelband's ExodusPoint launched last year with $8 billion — the most assets ever for a new fund — and a fee structure that requires investors to pay for everything but the art in the office.

The returns have been below average so far — Exodus returned 3.32% through the first half of the year after posting returns of less than 1% in 2018. To be sure, judging returns only 12 months in can be premature, especially when a firm has a large pool of assets to deploy.

But other 2018 launches like D1 Capital Partners and Steve Cohen's Point72 have outperformed Gelband. He's also been outpaced by Millennium, his former firm from which he has poached several executives and portfolio managers. 

Izzy Englander's firm has returned 4.7% through the end of June, an investor document signed by Englander and senior managing director John Novogratz said. 

• $18.5 billion hedge fund manager BlueMountain is losing its head of fundamental credit, Omar Vaishnavi, who has been at the firm for a decade.
• Vaishnavi led three teams — distress and special situations, long-short credit, and credit traders — that had 11 analysts, three traders, and one portfolio manager in total, according to a presentation Vaishnavi gave at a mid-June conference. One of those analysts, Lana Khabarova has since left. 
• Vaishnavi pitched oil and natural gas company Weatherford International's unstructured debt as an investment idea. His presentation said the bonds were worth double what they were trading for in June. 
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BlueMountain Capital is losing its head of fundamental credit, Omar Vaishnavi, who just over a month ago was pitching a room full of peers on an investment idea: the debt of a soon-to-be bankrupt oil and natural gas company. 

Vaishnavi was one of BlueMountain's 13 partners, and was with the firm for a decade, according to his LinkedIn profile. He had been running distressed and special situations, long-short credit and credit trading teams ahead of his departure, which the firm confirmed to Business Insider on Friday. Bloomberg was first to report he was leaving the firm. 

At the Ben Graham conference held by the CFA Society New York in June, though, Vaishnavi was still very much with the firm and presented on Weatherford International, a Houston-based oil and natural gas company that declared bankruptcy just a couple weeks after the presentation.

Vaishnavi's presentation predicted the unsecured debt in the company would double in value after the Chapter 11 bankruptcy filing, but that other investors were missing the opportunity because "many funds lost money during the prior management team's control and it will take time to reverse this mindset."

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"Multiple funds experienced losses from energy investments in 2014-2018 and are hesitant to add new exposure," the presentation reads. 

The presentation, given on June 19, predicted that the bonds would eventually trade for more than $100, a price which the bonds have not hit since oil prices crashed in late 2014. 

BlueMountain believed Weatherford's bankruptcy will result in one of two scenarios: that the company restructures and emerges as a public equity in two years, or it sells itself, either in parts or as a whole, over the next three years.

Bondholders are expected to receive all but 1% of the company's equity in the restructuring plan, which needs to be court-approved. Existing shares in the company are expected to be cancelled along with about 70% of the company's debt. 

Vaishnavi's presentation also gave a breakdown on the teams that reported to him within the $18.5 billion hedge fund. Distressed and special situations, which had eight analysts, and long-short credit, which had three analysts and Rushabh Doshi, a portfolio manager, both reported to him. One analyst from the long-short credit team listed in the presentation, Lana Khabarova, has left the firm since the presentation was given. 

He also had a team of three credit traders, led by Jeff Dardarian. 

The fundamental credit team will now be run by Doshi and distressed and special situations analyst Hugo Villarroya, the manager told Business Insider in a statement, with Doshi in charge of the US team and Villarroya leading the European side. They will both report to founder and CIO Andrew Feldstein.  

Sources familiar with the firm's position in Weatherford say it is down year-to-date, but within risk limits. 

The firm has struggled in 2019, and has axed a pair of strategies — systematic equity and long-short equity— that were not profitable. On a recent earnings call, BlueMountain investor Affiliated Managers Group stated the company's profitability is expected to go up by the year-end. 

While the firm has cut people from the two strategies it closed, BlueMountain has also added 10 people over the last 12 months to several teams it is prioritizing, including fixed income, healthcare, infrastructure, and collateralized loan obligations. 

See more: $21 billion hedge fund BlueMountain Capital has upped its bet on PG&E, the utility that's crashed 60% since the California wildfires. Here's why.

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• Affiliated Managers Group, an asset manager that partners with and takes stakes in other money managers, is considering selling its majority stake in $18.5-billion hedge fund BlueMountain, Bloomberg reported.
• Just last week, AMG executives told investors on an earnings call they expected BlueMountain to meet its profitability targets by year-end. Earlier this year, AMG had to write off a $415 million loss attributed to lower performance fees from Andrew Feldstein's firm.
• BlueMountain struggled to perform well this year, and has already closed two strategies — long-short equity and systematic equity — that the firm deemed unprofitable.
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Just one week after Affiliated Managers Group's executives told investors that BlueMountain was on the path to hit its profitability goals by year-end, news breaks that AMG is considering selling its stake in the $18.5 billion hedge fund.

According to a Bloomberg report, no final decision has been made on AMG's end. But the report of a possible sale comes after BlueMountain has undergone cost-savings maneuvers like closing its long-short equity and systematic equity lines to increase profitability. 

The manager has had a tough 2019, with its flagship fund down nearly 4% on the year, despite the average hedge fund being up roughly 8%. AMG, in filings, announced a $415 million writeoff on its stake in BlueMountain, saying performance fees had been depressed and growth expectations will be significantly lower. 

The hedge fund, known for its credit strategies, also recently lost its head of fundamental credit Omar Vaishnavi, who had been with the firm for 10 years and was also a partner, and portfolio manager Eric Rains, who is joining Citadel as Ken Griffin's firm builds out a macro team under Balyasny alum Colin Lancaster. 

See more: BlueMountain's head of fundamental credit is leaving the firm. Here's one of the last investments he pitched.

A representative from BlueMountain declined to comment. AMG did not immediately respond to requests for comment. 

BlueMountain is also one of the several hedge funds to make big investments into California utility PG&E, which has been found to be responsible for several of the state's massive wildfires, like 2017's Tubbs Fire and 2018's Camp Fire. The firm settled with PG&E earlier this year to get a new independent director on the utility's board, and a source close to the hedge fund said the firm's position in the utility is up for the year. 

See more:BlueMountain Capital has upped its bet on PG&E, the utility that's crashed 60% since the California wildfires. Here's why.

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• Affiliated Managers Group sold its majority stake in Andrew Feldstein's BlueMountain Capital to Assured Guaranty, a Bermuda-based municipal bond and infrastructure insurer, for $91 million.
• The deal is expected to close at the end of the year, and Feldstein will net $22.5 million in shares of Assured Guaranty as a part of the deal. 
• BlueMountain's performance struggles this year forced AMG to write-off a $415 million loss earlier this year, and the hedge fund recently lost its head of fundamental credit. 
• For more stories like this, visit Business Insider's homepage. 

For $91 million, Affiliated Managers Group has sold its share in Andrew Feldstein's struggling BlueMountain Capital roughly 12 years after buying it. 

The deal, which was reported by Bloomberg on Wednesday and then confirmed by a statement from AMG, will close at the end of the year, when Assured Guaranty, a Bermuda-based insurer of bonds and infrastructure, will take control of the credit-focused hedge fund.

Assured also bought out the partners at BlueMountain, leaving Feldstein with roughly $22.5 million in Assured shares and a new title of CIO and head of asset management.

Feldstein's co-founder Stephen Siderow will keep his title as co-president of BlueMountain. 

"We are pleased to have had a good partnership with BlueMountain over many years, and also that we worked closely with our long-term partners at BlueMountain to achieve an outcome that is in the best interests of BlueMountain's clients and employees and AMG's shareholders," said AMG CEO Jay Horgen in the statement. 

See more: BlueMountain's flagship fund is losing money so far this year even as the rest of the industry surges, and it's just the latest blow for the hedge fund

BlueMountain's tough run to start 2019 was not easy on its performance or its biggest backer. The firm's flagship fund, the Credit Alternatives fund, faltered as others in the industry notched impressive returns, and AMG was forced to take a $415 million write-down on its BlueMountain stake.

The hedge fund was working to meet profitability targets that AMG was pushing for by the end of year, which included cutting the firm's long-short equity and systematic equity strategies. The firm was also tied up in the utility PG&E, which was found to be at least partially responsible for some of California's deadly wildfires in 2017 and 2018.

BlueMountain decided to axe the two equity strategies and focus on its strengths, such as the credit investments the firm made its name on. But the firm's head of fundamental credit, Omar Vaishnavi, left just a month after giving an investment pitch on the fund's behalf at a New York conference. 

See more: BlueMountain's head of fundamental credit is leaving the firm. Here's one of the last investments he pitched.

Assured will hold its second-quarter earnings call on Thursday morning. The company plans on spending $90 million on BlueMountain's operations within a year of the deal closing, and will invest another $500 million into BlueMountain products over three years.

"We have been searching for the right asset management platform for over three years, and we found it in BlueMountain, a seasoned asset management firm with a compatible credit culture, complementary market knowledge and the scale to make a material contribution to Assured Guaranty's profitability," Dominic Frederico, Assured Guaranty's chief executive officer, said in the statement.

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• An investor presentation from Assured Guaranty outlines the focus for Andrew Feldstein and his BlueMountain team at their new owner. 
• BlueMountain will have a bigger focus on collateralized loan obligations, and is expected to issue multiple CLOs a year in Europe and the US. Assured Guaranty will also provide capital for new hedge fund strategies to be launched.
• While Feldstein received $22.5 million in Assured shares, he is also going to invest up to $150 million in BlueMountain's funds and CLOs over the next three years. 
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A day after Assured Guaranty said it would buy $19 billion hedge fund and CLO manager BlueMountain, it laid out what the future holds for the recently struggling firm and its co-founder and chief executive, Andrew Feldstein. 

There were "many companies" that were interested in acquiring or partnering with BlueMountain, Feldstein said on an earnings call for the firm's new owner on Thursday. That's even after the BlueMountain turned in an industry-lagging performance for the first half of 2019 and axed a pair of strategies that were not profitable. 

And for $160 million, Assured Guaranty was the one that ended up with Feldstein's company, buying out the partners of the firm and majority stakeholder Affiliated Managers Group. Now, an investor presentation shows just how the insurer is planning to put its new purchase to work.

CLOs, or collateralized loan obligations, already make up $12 billion of BlueMountain's $19 billion — and Feldstein expects to add $2 billion more in CLOs by next year — but Assured Guaranty's presentation makes it clear that it sees this unit as a key growth engine.

See more: BlueMountain's flagship fund is losing money so far this year even as the rest of the industry surges, and it's just the latest blow for the hedge fund

In a section of an investor presentation titled "Go-Forward Focus," it states that BlueMountain will "continue to issue multiple CLOs per year in both the US and Europe," and the affiliation with Assured Guaranty should "enhance the growth of the CLO business."

Assured and BlueMountain have had a long connection in the CLO business, Feldstein revealed on an earnings call for Assured Guaranty on Thursday morning: Assured wrapped BlueMountain's first CLO in 2005, just a couple years after Feldstein and co-founder Stephen Siderow launched the firm. 

BlueMountain has launched 34 CLOs since inception and is the 16th biggest CLO manager globally, the presentation states. 

Assured Guaranty is pumping significant money into BlueMountain's funds and CLOs, to the tune of $500 million over three years. Feldstein, who is receiving $22.5 million in Assured stock, will also invest up to $150 million in the funds.

See more: BlueMountain's head of fundamental credit is leaving the firm. Here's one of the last investments he pitched.

While CLOs seem to be the calling card, the presentation and earnings call left open the possibility of new hedge funds being launched if an opportunity is there.

"Leverage capital to support new products and other growth opportunities," reads a bullet point in the presentation on how the new asset management unit will operate. 

BlueMountain has consolidated the number of strategies it runs this year, cutting two different equities strategies because they weren't profitable enough, and the presentation names the firm's core competencies as "alternative credit, global volatility, and fixed income."

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