As hedge fund Jain Global's returns worsen, questions over hiring
Jain Global, the hedge fund founded by former Millennium co-CIO Bobby Jain, launched on July 1st with $5.3bn in assets under management (AUM). In July, it lost 0.65%. In July and August combined, it lost 1.2%. With returns negative and AUM already below the $8-$10bn the fund was initially targeting, questions might be raised over costs.
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When it launched, Jain employed 42 portfolio managers (PMs). As we noted in July, given (unvalidated) assumptions about the distribution of assets between those PMs and leverage restrictions for new funds, it was already possible to argue that Jain's PMs maybe didn't have as many assets to manage as those at rivals like Citadel. With AUM down since launch, those arguments just got a bit louder.
If returns aren't forthcoming, investors, who are paying Jain's costs on the pass-through model, may yet start questioning the wisdom of their capital commitment.
Jain should, however, have a period of grace. Early stage investors were given discounted in fees to take account of the fact that Jain needs to ramp up. Its $5.3bn of AUM were raised on a multi-year subscription model under a drawdown fund, which means Jain is able to access the money as necessary when capital is deployed. For the moment, investors can't their money back - even if they want to.
Equally, not all the $5.3bn has been deployed yet. Jain declined to comment for this article, but it's understood that only a small portion of its portfolio managers are currently deploying capital and that many are either on non-competes or working through processes before they begin trading. The 1.2% loss is only on drawn down capital, not the $5.3bn in total. As the fund gets fully up and running, returns are expected to improve.
What does seem likely, though, is that Jain Global won't continue the hiring spree that preceded its launch. The most recent portfolio managers to join came in early August (Ali Rauf from Squarepoint and Amir Ravan from BlueCrest), and although more are in the pipeline, the
Bloomberg reported in July that the fund has been attracting people with non-deferred cash bonuses.
One headhunter said Jain is in a challenging position: "Most of the bigger funds now are trying to focus on progressing people through the junior ranks because the economics are so much better for the fund. A new launch doesn’t have time to do that, so you therefore have to make it attractive somehow to established portfolio managers and investment teams."
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