Hedge fund giants like Point72 and Millennium enter the private credit market, ushering in a new era of "slow returns."

The hedge fund industry is undergoing a profound strategic transformation, with several top multi-strategy hedge funds turning their attention to private credit and other non-public markets in search of new growth points.

Media reports on November 12 indicated that well-known institutions such as Point72 Asset Management, led by Steve Cohen, and Millennium Management, founded by Izzy Englander, are actively positioning themselves in the private credit space, challenging the market dominance of traditional alternative asset management giants like Blackstone, Ares Management, and Apollo Global Management.

Point72 is in preliminary discussions to raise at least $1 billion for a private credit fund. To strengthen its capabilities in this sector, the company hired Todd Hirsch, a former senior managing director at Blackstone Group, earlier this year to lead its private capital business. Millennium Management is raising $5 billion for its first private market fund, focusing on investments in less liquid companies, asset-backed bonds, real estate, and other low-correlation strategies.

Behind this strategic adjustment is the dual pressure of scarce quality assets in the public market and the peak growth of the hedge fund industry. Although the total global hedge fund management scale has surpassed a historic high of $5 trillion, some leading funds have paused accepting new capital, and D.E. Shaw, Point72, Citadel, and Bridgewater Associates have even returned billions of dollars to investors.

Shrinking Public Markets Drive Strategic Transformation

The rapid expansion of the private market provides hedge fund giants with significant development opportunities. Research from Bank of America shows that since 2000, the number of publicly listed companies in the U.S. has halved, while the number of privately held companies receiving venture capital support has increased by 25 times.

Since the 2008 financial crisis, the private credit industry has continued to thrive, with a significant amount of credit business shifting from the banking system to buy-side institutions. Many types of transactions, such as structured credit and significant risk transfer transactions, are just a step away from traditional hedge fund operations in the public bond and equity markets.

Synthetic risk transfer (SRT) transactions have seen significant growth over the past year. Data shows that the total scale of bank synthetic securitization has reached $673 billion. Craig Bergstrom, Chief Investment Officer of New York-based asset management firm Corbin Capital Partners, stated:

“In the SRT space, some managers have been long-term active in structured credit and the same underlying credit areas, making them important trading counterparts in the market, and this expansion seems natural.”

Talent and Scale Become Key to Competition

Hedge fund executives believe that their expertise in complex risk pricing can extend to the illiquid asset market, although investment horizons need to be correspondingly extended. D.E. Shaw, Point72, Millennium, and Jain Global collectively manage over $195 billion in assets, and these platforms have established the analytical capabilities, technical systems, and governance structures necessary to handle complex transactions and implement large-scale risk management D.E. Shaw is an early explorer in the field, and this hedge fund, managing over $70 billion, launched its first private credit fund in 2008, initially focusing on financing in the energy sector. As the Basel III Accord forced banks to reduce proprietary trading and lower balance sheet risk exposure, the fund's business gained expansion opportunities. To date, D.E. Shaw has raised over $5 billion, including a new fund of $1.3 billion established in May this year.

Jain Global has formed a new strategic trading team led by former D.E. Shaw portfolio manager Syril Pathmanathan. It is reported that the team focuses on leveraging opportunities arising from regulatory or capital inefficiencies to expand bank capital relief-type transactions, and has raised approximately $600 million.

However, talent acquisition is not a panacea. Bergstrom pointed out:

"Companies need scale, leverage, and infrastructure support, which new entrants lack. The return on direct lending largely depends on financing costs, which are directly related to the scale, diversification, and industry experience of the portfolio. This is a real disadvantage for newcomers."

Market Doubts and Risk Challenges Coexist

Opaque assets harbor risks. Recent high-profile bankruptcies, such as First Brands Group and Tricolor, have impacted the credit market. The investment team led by Sean O'Sullivan at Millennium has taken write-downs on its investment in First Brands, expecting losses of about $100 million.

Marcus Storr, head of alternative investments at the German hedge fund allocation firm FERI, is skeptical about this transformation trend: "This seems to be a manifestation of institutions chasing new concepts after excessive expansion. We believe this strategic shift lacks sufficient basis."

Bruno Schneller, managing partner at multi-family office Erlen Capital Management, emphasized that the speed, relative value analysis, and derivative usage capabilities relied upon by excellent public market credit managers do not fully align with the characteristics of private credit businesses that focus on long-term relationship maintenance. The real challenge lies in the cultural and operational aspects—whether these institutions can adjust their incentive mechanisms, decision-making processes, and talent structures to adapt to an investment environment with return cycles lasting several years rather than several quarters