ExodusPoint may be the first of many to adopt a cash hurdle

In that environment, even multi-strategy funds that are not among the top tier of the sector have been able to charge long locks and high fees. Many of those high-priced managers have since struggled to generate profits that offset rising talent and technology spending — and their backers are finally getting some leverage.

ExodusPoint, the $11 billion manager led by former Millennium executive Michael Gelband, is launching a new share class for investors that will link performance fees to short-term Treasury yields, a person close to the company said. The Wall Street Journal previously reported the move.

The new share class, which will be retroactive to early 2024, still charges management fees and a switch fee and has a longer lock-up period than previous share classes.

While some industry insiders see this as an isolated move that reflects ExodusPoint’s relative underperformance rather than an industry-wide shift — the firm is up 4.6% through August, compared with more than 18% gains by S&P 500 at the same time. — it’s hard to deny that multi-strategy funds have lost their leverage. A recent report by Goldman Sachs, seen by the FT, shows that more than $30bn was bought back from these managers from June 2023 to June – the first time the sector has seen outflows since 2016.

“There has been a shift in allocator sentiment and the flow picture reflects this lower appetite,” the report said.

The effects of this diminished interest are already evident. Bobby Jain’s new fund launched with $5.3 billion in July, after there were whispers that he had raised $10 billion six months earlier. Former Point72 president Doug Haynes spun off his yet-to-be-launched Norias Research this month due to fundraising issues, Bloomberg reported.

And LPs have taken advantage of this momentum, especially in the face of ever-rising costs eating into their bottom lines. Higher interest rates mean institutional investors need their managers to beat a higher benchmark than five years ago to make the risk worth it.

This came to a head in May when a group of more than 50 funders, led by massive pension system and investor ExodusPoint Teacher Retirement System of Texas, published an open letter calling for their hedge funds to adopt tax barriers . Some allocators believe ExodusPoint’s decision — which forces the firm to outperform the 13-week Treasury note yield, which is currently just under 5% — to follow their recommendation is just the beginning.

“I suspect things will be on a case-by-case basis as underperforming funds with impatient investors make a peace offering to buy a little more runway,” said Justin Young, chief investment officer at Multilateral Endowment Management Company. an allocator. who works with foundations and endowments like the Oklahoma State Foundation, on LinkedIn.

“It will take time, but assuming a 10-15% change every year, it will be the industry standard again soon. The best funds will still be able to dictate their own terms as supply exceeds demand, but with worse economics, net. the returns will compress a bit, narrowing the gap.”