- ExodusPoint ended 2022 with fewer assets, employees, and PMs than it started with — a first.
- Equities trading has been a stumbling block for the firm and underperformed again in 2022.
- The fund regrouped this fall, cutting PMs, reallocating capital, and leaning into fixed-income trading.
As a chaotic year in the markets headed toward a close, some of the most revered hedge funds in the industry, such as Citadel and D.E. Shaw, cruised to the finish line with banner results.
Others, like ExodusPoint, staggered.
The firm, which holds claim to the largest hedge fund launch in history, returned in 2022 a modest 5.5% to 6%, depending on the share class, according to investor documents seen by Insider and people familiar with the matter.
That was an improvement over 2021, when the fund returned 4.9%. It also bested the broader stock market, which dropped double-digits, and the hedge fund industry at large, which fell by 4.25%, according to the HFRI Fund Weighted Composite Index.
But it paled in comparison to top peers, multi-strategy giants including Citadel (up 38.1%), Millennium (up 12.4%), Point72 (up 10.25%), and Balyasny (up 9.7%).
ExodusPoint's fortunes diverged from rivals in another key manner: It got smaller.
For the first time since its ballyhooed launch in 2018 with more than $8 billion in capital, Exodus ended the year with fewer assets, portfolio managers, and employees than it started with, according to investor documents seen by Insider and people familiar with the firm's operations. Exodus started 2022 with $13.5 billion in assets and 674 employees — including 108 portfolio managers — and by June, it stood at $13.9 billion in assets, nearly 700 employees and 106 PMs, while the fund was up 3.3%.
But it ended the year with $13.1 billion in assets, while headcount fell 11% from June, and the number of portfolio managers fell by nearly 25% to 81, including a November shakeup that jettisoned a string of PMs.
What led to the reshuffling at ExodusPoint in 2022?
A spokesman for the firm declined to comment.
Equities held back performance — again
Last year in some ways echoed ExodusPoint's whole existence thus far: Its equities business produced more headaches than returns. While 2022 was a brutal year for stock traders broadly, equities has been a recurring stumbling block at the hedge fund almost since the get-go.
ExodusPoint's DNA is rooted in fixed income, the arena where its cofounders, Michael Gelband and Hyung Lee, cut their teeth at Lehman Brothers in the 1990s and 2000s. While Lee transitioned to an equities leadership role when the pair reunited at Millennium post-financial crisis, Gelband continued to print money in fixed-income, claiming to have produced $7 billion in revenue during his eight years at the hedge fund.
As Insider reported last year, ExodusPoint's profits have largely stemmed from its fixed-income trading, the side of the business overseen by Gelband.
But the company has been investing heavily in diversifying its income stream. That included hiring for popular strategies like index-rebalance trading and launching last year a fundamental equities unit called WestWind, headed by Robert Bovo, a former Millennium PM who joined Exodus in 2019.
"It was surprising to me how much equity and capital was being put toward equities when fixed-income was clearly the breadwinner," a former employee in fixed-income told Insider last year.
But 2022 was more of the same. The strategies reporting to Gelband were up significantly, with rates and macro trading accounting for the bulk of the profits, according to investor documents. The equities operation, overseen by Lee, suffered losses. Equity quant and event arbitrage performed the worst, losing 0.77% and 1.82%, respectively, according to the investor documents.
On the one hand, ExodusPoint is delivering the steady, low-volatility performance it pitched to investors. Its cautious approach hasn't yielded blockbuster returns, but it hasn't lost money either during some tumultuous trading periods.
But is that still good enough when rivals are swimming in profits and liquid investments like Treasury bills are paying out around 4%?
"Why am I paying the fee and liquidity lockup for a firm that's historically at 6% to 7% returns, including T-bills?" a hedge fund recruiter said, commenting on the calculus for hedge fund investors.
Some investors last year seemingly decided 'no' and pulled money, contributing to the $800 million drop in assets from June to December, even as the fund's performance nudged up.
It's worth pointing out that ExodusPoint is not alone in facing redemptions. The hedge fund industry contracted broadly last year — it lost 5.8% of assets or $277 billion through November, according to BarclayHedge's latest flow report. Multi-strategy hedge funds fared better, growing by 4.28% or $21 billion in assets over the same period.
ExodusPoint has also been closed to investors for years — outside of its launch it has only raised funds once, adding $3 billion in spring of 2020 — so it hasn't replaced redeemed capital.
ExodusPoint regrouped in late 2022
Gelband himself was impatient in the firm's early years that Exodus was churning out only single-digit returns, a person familiar with the matter previously told Insider, and the founders haven't shied away from shaking up their operations and cutting personnel loose.
ExodusPoint's leaders didn't sit idle last year, either.They regrouped this fall, a person familiar with the matter told Insider, reevaluating its portfolio manager allocations and redeploying assets to lean into the firm's fixed-income backbone.
At the end of 2021, the fund's exposure had been evenly split between fixed-income and equities, according to the investor documents. By the end of 2022, the majority of the fund's exposure was in rates and macro — a reflection, in part, of the market environment and how well such strategies were performing across the industry.
Then there are the cuts, the brunt of which were borne by the equities business, including a slew of pink slips coming in November after leaders reevaluated the business, people familiar with the matter said. WestWind was shuttered after less than a year of trading, Bloomberg previously reported. Before that, employees dedicated to index-rebalance trading were cut after that strategy went sideways this summer, people familiar with the moves told Insider.
In all, more than 60 portfolio managers departed or were let go in 2022, according to the investor documents and people close to the matter.
But even as it sent PMs packing, Exodus has also continued to hire. It brought aboard 36 new PMs last year, including Ahmet Arinc, who shuttered his $500 million macro hedge fund Cirera Capital to join ExodusPoint instead, Bloomberg reported in September. Other recent PM hires include Luke Gannon from Squarepoint Capital, Tim Rishi from Caxton Associates, and Todd Finegold from Surveyor Capital.
The fund is also bolstering its operations in Paris and Dubai. GoldenTree partner and former JPMorgan junk bond trader Bhavit Sawjani joined in July to head ExodusPoint's office in the United Arab Emirates.
After the shakeup, ExodusPoint's income stream is now even more reliant on fixed-income trading — and that may not be such a bad thing.
"The fixed income piece is doing incredibly well," another hedge fund recruiter said.
Absent the drag from equities, the fund's performance in 2022 would have been formidable. If Exodus trains its focus primarily on macro and fixed-income, the first recruiter said, "the core of that business is going to be rock solid."
There are early signs that the reshuffling is producing the desired effect.
ExodusPoint gained 1.2% in December to cap off the year and was up 0.85% in January, a person familiar with the matter told Insider.