(Bloomberg) -- Hedge fund founder Dmitry Balyasny runs one of the world’s biggest multistrategy hedge funds, and he has a message for anyone thinking of following in his footsteps: Don’t try this at home.
“It’s a very difficult business to build and to maintain your edge in,” Balyasny said on an episode of “Bloomberg Wealth with David Rubenstein.” “The DNA of that type of firm, where in addition to just being a good investor or trader, you have to be good at people management, at recruiting, at infrastructure, risk and technology — that’s very hard to compete at today from a standing start.”
Balyasny, 52, co-founded Balyasny Asset Management in 2001, and it has since grown to oversee about $22 billion of assets. That puts it in a rarefied league of multistrats that manage at least $20 billion.
Often referred to as pod shops, these firms employ dozens of teams, or pods, that operate independently of one another. The teams collectively trade a range of assets including stocks, commodities, interest rates and more, and their strategies are pooled into a fund that aims to offer investors diversified return streams in a single product.
Investors flocked to multistrats such as Citadel and Millennium Management over the past few years after they posted better gains than their single-strategy peers. But fundraising has gotten much tougher lately. Potential clients have less cash on hand partly because of a prolonged deal drought that has crimped private equity payouts. That, coupled with investor concerns about some multistrategy funds’ high fees and long lockups, has made it tougher for new entrants to get started.
The shift in sentiment has even affected the likes of Bobby Jain, the former Millennium co-chief investment officer whose multistrat shop Jain Global launched this month with $5.3 billion of commitments.
While Jain pulled off one of the biggest hedge fund launches ever, he had initially set out to raise as much $10 billion and only reached a smaller goal after offering investors fee breaks and other sweeteners. Would-be multistrat founders without Jain’s gold-plated pedigree and connections may face a much tougher time getting off the ground.
Some multistrats have posted solid gains this year. Citadel, Schonfeld Strategic Advisors and Point72 Asset Management all posted gains of roughly 8% to 10% for their main funds in the first half of the year. Balyasny’s gained about 5.5%.
Balyasny started his hedge fund career at Schonfeld after answering a newspaper ad for a job at the firm. He started as a trader and worked his way up, eventually building the team and portfolio that he spun out into his own shop.
His firm faced a reckoning in 2018, when its main fund lost 7% — the only annual decline in its history. The firm overhauled its investment process and has since added new strategies and divisions, including Corbets Capital, launched in 2022 to bolster its equity strategy.
When looking at how the hedge fund industry has evolved since he started, Balyasny said he sees parallels to private equity.
“Thirty or 40 years ago, there were thousands of private equity firms,” he said. “But today, the vast majority of the alpha is half a dozen firms. I think it’s very similar to that. It’s very hard to go start up a firm today and go compete with Blackstone and Carlyle and Apollo. And I think it’s the same thing in multistrats.”
Today, Balyasny’s firm manages far less than Citadel (about $63 billion) and Millennium (roughly $68 billion), but he says that’s how he prefers it. In contrast to Citadel’s Ken Griffin, Balyasny keeps a deliberately low profile and rarely grants interviews.
“We’ve never sought to go out and pitch individual ideas or propagate market views,” he said. “We always want to be kinda humble and flexible in our views. And if you go on TV and talk a lot about what you like or don’t like, it makes it hard to change your mind.”
For more insights from the biggest names in investing, watch “Bloomberg Wealth with David Rubenstein.” Balyasny’s interview airs Tuesday, July 30, at 9 p.m. in New York.
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