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A PE fund is typically going to hold investments for a long time and can't liquidate them easily. Ownership is also operationally intense and sourcing is often (though decreasingly in late stage PE) relationship based. This means that multiple partners provide bandwidth and redundancy. It also reduces the dynamics of partners tearing each other apart when they disagree on something in the portfolio. You can't quickly sell it, so you have to make the best of it.
Hedge funds with short books or other forms of hedging require very rapid reaction (a short moving against you hard can get very serious very fast for instance). Most HFs that are started by multiple PMs wind up failing becaues the two PMs tear each other apart. The stress of constant market moves (especially on the short side, where downside is unlimited), the need for quick reactions and the fact that you can always sell a position (and thus, can always relitigate a decision) destroys most dual PM marriages.
Some hedge funds have multiple founders but usually there is one investment trigger puller. Other founders may be senior analysts, business development or ops. Some can have substantial equity but are not the investing decision maker.
LP preferences and experiences reinforce the above. No LP wants to liquidate a PE fund if a single key person leaves, but wind down is not a problem for most liquid strategies. Meanwhile, most LPs have seen dual PM hedge funds fail and aren't interested.
Some long only firms have operated successfully as multi PM. They tend to have a longer term approach and lack the pressure of needing to be as responsive to the market (through the short book or other hedges - trying to beat the market over time is different than promising to preserve capital through all situations, which is a more ambitious goal that some hedge funds are aiming for) and so can have a more consensus approach. Of course many are not but you could think of long only as being in the middle in terms of most of the forces mentioned above.
Thanks, this makes a lot of sense. I agree with the notion that startup HFs should only have 1 PM to start, but a co-founder could be an analyst or biz dev person like you mentioned? I just don't often read about the #2 guys at these funds even though they are technically co-founders and own a meaningful slice of the GP. Just curious as to why media doesn't mention the whole co-founding team like they do for startups or PE funds, but your explanation rationally describes the internal reasoning behind single manager funds.
Why does it matter if it’s just semantics? The last thing one should worry about is media recognition.
Just curiosity tbh. Was always wondering why HFs were always marketed as having a single founder.
I guess often times simply the one that’s the most marketable. People mostly invest in the main guy rather than the whole team. With caveats.
The entire PE/VC process in my view is much more team driven vs. the HF world. While a Partner / MD at a PE fund may identify and lead a deal, there is generally a full Investment Committee process, other senior members of the team get involved in the deal stage and post-investment stage, etc. While there may be a sense of which MD has led good deals vs. bad deals, it is less clear cut and more challenging to pin point an individual's returns within the organization.
In the HF world it tends to be more independent work, particularly in the larger multi-managers, with a PM having ownership over his book and pulling the trigger on specific trades. While he is supported by his junior team, he lives and dies by his own P&L. This individual will be accountable to the rest of the fund in terms of performance but in a much less collaborative manner.
Given how closely the senior team members in PE/VC funds work together, it isn't uncommon to see a handful of the junior partners leave together to start their own fund, with higher earning potential (given founding / name partners taking a huge portion of the upside in their earlier roles). HF founders in many cases were extremely strong PMs / analysts within a larger organization and their returns can speak for themselves. However many of them are much less exposed to the fundraising side of the business, so you'll often see them hire a COO early on to get involved in the set up of the business.
Plenty are started by multiple people. There is usually one who is more well known or driving outcomes who already is or becomes famous. Others may be less critical IPs, COOs, etc.
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