Major Hedge Funds Expand Aggressively into Booming Private Markets

Steve Cohen, one of Wall Street’s wealthiest figures, built his fortune through fast-moving, high-frequency trading. But recently, the billionaire founder of Point72 Asset Management has been steering his firm in a new direction one where long-term patience, not rapid-fire trades, drives returns.

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Cohen is among several high-profile hedge fund leaders, including Izzy Englander of Millennium Management and Bobby Jain of Jain Global, who are branching into private credit and other less transparent corners of finance. These markets have long been dominated by asset management giants like Blackstone Inc., Ares Management Corp., and Apollo Global Management.

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Now, multistrategy hedge funds see an opportunity to leverage their expertise in pricing risk and attracting top-tier talent to gain an advantage in this rapidly expanding sector though it’s not without its challenges.

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Their dynamic capital allocation and performance-driven culture have worked wonders in liquid markets,” said Bruno Schneller, managing partner at Erlen Capital Management. “Some of those strengths, like disciplined risk-taking and top-notch talent management, can carry over but private credit is a very different game.”

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The appeal of private markets is clear. With public markets shrinking and hedge funds reaching their capacity to manage new money, firms are seeking fresh opportunities. Global hedge fund assets have swelled to a record $5 trillion, with multistrategy firms capturing most of those inflows. Yet many top funds including D.E. Shaw & Co., Point72, Citadel, and Bridgewater Associates have stopped taking new client money and even returned billions to investors.

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The investment landscape has shifted dramatically over the past two decades. The number of U.S.-listed public companies has been cut in half since 2000, while venture-backed private firms have grown 25-fold, according to Bank of America Corp. research. Startups now remain private for an average of 16 years, a 33% increase compared to a decade ago.

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Meanwhile, private credit has exploded since the 2008 financial crisis, as traditional lending activity migrated from banks to institutional investors. Strategies like structured credit and synthetic risk transfers (SRTs) now sit at the edge of what hedge funds already do in public markets.

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Structured credit involves bundling loan cash flows into new securities, while SRTs allow banks to transfer the risk of their loan portfolios to investors without selling the loans themselves. The value of these synthetic securitizations surged to $673 billion in the past year, Bloomberg data shows.

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“For SRTs, hedge funds already familiar with structured credit see a natural extension of what they know,” said Craig Bergstrom, chief investment officer at Corbin Capital Partners. “But direct lending is a different story it’s crowded, competitive, and dominated by players with long-established relationships.”

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Bergstrom added that while access to elite talent is helpful, it’s not enough to guarantee success. “Firms need scale, financing power, and deep infrastructure things newcomers often lack,” he explained. “Direct lending returns now depend heavily on the cost of leverage and portfolio size. For those just entering, that’s a real disadvantage.”

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Millennium Management is currently raising $5 billion for its first private markets fund, which will invest in corporate and asset-backed debt, real estate, and other low-correlation assets but notably avoid direct lending. The fund will be overseen by Millennium’s CIO office and staffed by a mix of current employees and new recruits.

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Jain Global has launched a strategic transactions group, led by former D.E. Shaw portfolio manager Syril Pathmanathan, to focus on bank capital relief trades and regulatory inefficiencies. The firm has already raised about $600 million for these initiatives.

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At Point72, Cohen’s firm is in early talks to raise at least $1 billion for a new private credit fund. Earlier this year, Point72 hired Todd Hirsch, formerly a senior managing director at Blackstone, to lead its private capital division.

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The move isn’t entirely new among hedge funds. D.E. Shaw & Co., which oversees more than $70 billion, entered private credit in 2008, initially lending to the energy sector. The firm expanded its reach after post-crisis regulations like Basel III forced banks to reduce balance-sheet risk and shutter proprietary trading desks. Since then, D.E. Shaw has raised over $5 billion for private credit, including a $1.3 billion fund launched in May 2024.

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Still, not everyone is convinced this trend is wise. “It feels like they’re just getting too big and chasing new ideas without enough experience,” said Marcus Storr, head of alternative investments at FERI. “We’re not sure this makes sense strategically.”

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The skepticism isn’t unfounded. Private credit markets can be opaque and risky. Recent months have seen bankruptcies from U.S. auto parts companies First Brands Group and Tricolor, leading to major losses including a $100 million writedown by a Millennium team led by Sean O’Sullivan. UBS Group AG has also begun liquidating two hedge fund-run credit funds.

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Yet many hedge fund leaders insist they are well-prepared to manage risk in these less liquid markets. They point to their analytical rigor, advanced technology, and governance systems the same tools they’ve long used to handle complex trades. Collectively, firms like D.E. Shaw, Point72, Millennium, and Jain Global manage over $195 billion, giving them the scale to recruit top-tier private credit talent.

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To safeguard their core hedge fund operations, these firms are launching separate private market vehicles, ensuring that illiquid investments don’t compromise liquidity or risk management elsewhere.

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Even so, adapting to the slower, relationship-driven world of private credit won’t be easy. “The skills that make someone a great liquid-credit trader speed, derivative use, and relative-value analysis don’t automatically apply to long-horizon lending,” Schneller noted. “For these hedge funds, the real test will be cultural and operational. Can they shift their systems, incentives, and mindset to a market where returns are measured in years, not quarters?”

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