Hedge funds that want to scale up and diversify as their fees come under pressure and investors flee the $3 trillion industry should follow Amazon.com Inc.’s growth strategy, according to Balyasny Asset Management.
Dmitry Balyasny, who leads the investment firm, says the mail-order giant has crushed the competition by relentlessly investing in its business, expanding into new areas, hiring the best talent and exploiting its pricing power.
“While it is unlikely that any hedge fund is going to compete with Amazon for the title of ‘World’s Most Valuable Company,’ we can learn a lot from their strategy,” Balyasny wrote in his first-quarter investor newsletter, seen by Bloomberg News. “It is a great example of the benefits of building a scalable platform that can extend opportunistically into new business lines.”
A spokesman for Balyasny, which managed about $12.7 billion in client assets as of March 1, didn’t respond to a request for comment.
The debate over the future of the hedge-fund industry is intensifying as investors ask for their money back after years of mediocre performance and high fees. More funds closed in 2016 than in any year since the financial crisis as clients yanked $70 billion from the industry, according to Hedge Fund Research Inc.
Fink’s View
Balyasny joins Laurence D. Fink in looking for inspiration outside the asset-management industry. The man who built BlackRock Inc. and helped popularize exchange-traded funds now has ambitions to turn the world’s largest asset manager overseeing $5.1 trillion into something more like Google.
“I am very impressed with what they have done in autonomous vehicles, in AI with DeepMind,” Fink said in an interview when asked what company impressed him the most. “They stay in front of their competitors continually.”
Amazon is also widely acknowledged as a pioneer in embracing new technology, and in his annual letter to shareholders last week, Chief Executive Officer Jeff Bezos said the company is ramping up its use of artificial intelligence to deliver goods more quickly.
As for hedge funds, they will have to either scale down to focus on niche strategies where they can differentiate themselves or build a diverse business, Chicago-based Balyasny wrote. The alternative, he said, is shutting up shop.
Eric Mindich, a one-time Goldman Sachs star trader who jumped into the hedge-fund business during its heyday, announced plans to return capital last month, while Richard Perry called it quits in September, saying he was closing his main fund after almost three decades.
Another Goldman alumnus, Leland Lim, is shutting his $885 million macro fund, while John Burbank’s Passport Capital is winding up one of its hedge funds, people with knowledge of the closures said this week.
“A long-short manager 10 years ago might have been OK with a couple of good analysts and a chief operating officer,” Balyasny wrote in the newsletter. “Competing today requires a significant investment in technology infrastructure, data, recruiting, corporate access, portfolio finance, compliance, investor relations, trading and more.”
This article was provided by Bloomberg News.
