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Money in 2018: The Managers and Executives to Watch

30 Dec 2017 12:00 pm

Hedge funds and other active managers had a much better 2017 than many anticipated a year ago.

Hedge funds held their own and even posted their best relative performance in a rising equity market in almost a decade. There is still a lot of pressure on the business, especially when it comes to its historically high fees, but only a few large shops closed their doors in 2017.

As for other active managers, rising markets helped mitigate the pain of continued outflows from stock funds and some managers posted comebacks against their benchmarks. Broadly, however, nothing in the past 12 months has stopped the rise of passive investing.

As 2018 starts, here are the money managers and executives to watch:

Abigail Johnson

One of the most senior women in asset management, Fidelity Investments' Chief Executive Abigail Johnson is leading the money-management and brokerage giant as both industries confront unprecedented cost pressures from the rise of low-cost index-tracking funds.

Under Ms. Johnson's leadership, the Boston-based firm has pushed further into exchange-traded funds, a type of product executives at the firm have long viewed as less important than traditional actively managed mutual funds. Fidelity also cut trading commissions in its brokerage business in early 2017 in a bid to capture more client assets flowing into ETFs. These are both passive plays.

Assets under administration at Fidelity rose 18% from the end of 2016 to $6.7 trillion at the end of November, while assets under management climbed to $2.43 trillion from $2.13 trillion at the end of 2016.

"We saw very strong operating income and revenue in 2016, and that trend continued in 2017 as well," a company spokesman said on her behalf.

Ms. Johnson has rarely made public speeches since succeeding her father as chief executive in 2014 and chairman in 2016, but over the past year she has stepped into the spotlight to discuss emerging technology in financial markets. In one 2017 speech she championed the prospects of bitcoin and other alternative currencies, an unusual stance for the head of a large financial services company, and in another discussed promise of artificial intelligence in financial planning and asset management.

"I'd like to think that huge new markets and products are going to be built on these open platforms," she said. "Blockchain technology isn't just a more efficient way to settle transactions, it can fundamentally change market structures and perhaps even the architecture of the internet itself."

Her challenge is balancing Fidelity's investments in those technologies with pricing pressures in other well-established corners of its business. The company in February offered its first ever large-scale voluntary staff buyouts to 3,000 of its longer-tenured workers in 2017.

More recently, Ms. Johnson has had to respond to allegations of sexual harassment at the firm. That led to the departure of one of its star stock pickers and prompted the firm to hire a consultant to review workplace conduct and create a sexual-harassment task force.

-- Sarah Krouse

Jeffrey Gundlach

As bond investors prepare for a more challenging environment, all eyes are on how Jeffrey Gundlach will handle the new market.

Mr. Gundlach's DoubleLine Total Return Bond Fund grew to $62 billion over its first six years, thanks to years of outsize performance, gaining Mr. Gundlach widespread recognition as "the new bond king." But after peaking in September 2016, the fund dropped to nearly $54 billion by the end of November 2017, even after adding nearly $500 million over the past two months, according to Morningstar Direct. Mr. Gundlach says his firm " had a record year" in inflows and performance for investors.

The DoubleLine fund gained 3.5% for the year through Dec. 26, compared with 3.38% for the average fund in the category, putting it in the 44th percentile for the year, Morningstar says.

Amid growing indications that the Federal Reserve will continue to raise interest rates, short-term Treasurys came under pressure in 2017, with the yield on two-year notes climbing to 1.87% from 1.19%. But yields on 10-year Treasurys barely moved, trading at 2.49% this week, raising questions about whether this "flattening" of the yield curve suggests an economic downturn is around the bend.

Mr. Gundlach, who didn't reply to a request for comment, has told investors he and his team don't see a recession in the offing, and on Twitter he warned of a possible "disaster" for corporate bonds when interest rates rise.

"The U.S. bond market setup hasn't been this interesting in years," he tweeted on Dec. 18.

-- Gregory Zuckerman

David Einhorn

Hedge-fund manager David Einhorn has fallen on tough times.

The stock picker has lost about 12% since 2014, compared with a 36.8% total return in the S&P 500. His Greenlight Capital Inc. was up 0.9% in 2017 through November, while the S&P is up 20.5%.

Greenlight paid out more than $400 million to clients who chose to cash out midyear, helping shrink the firm to $7 billion in assets under management. More money was expected to flow out at year-end, said people familiar with the matter.

Mr. Einhorn shot to fame during the financial crisis with a prescient call against Lehman Brothers Holdings Inc. He is a value investor known for making lengthy presentations critical of companies, complete with cartoons, puns and video clips.

The 49-year-old Mr. Einhorn is far from the only fundamentally oriented investor who has lost his footing in recent years, raising questions about whether the rise of algorithmic trading and passive investing have changed their prospects.

In 2017 alone, Eric Mindich and John Griffin said they were closing their shops, the $7 billion Eton Park Capital Management LP and the $6 billion Blue Ridge Capital, respectively. Both were under their high-water marks, or the point at which investment gains make up for returns, said people familiar with the matter.

-- Juliet Chung

Qi Wang

When Qi Wang arrived at Pacific Investment Management Co., she inherited one of the toughest seats at the firm -- in more ways than one.

Pimco hired Ms. Wang in 2010 to co-manage its hedge fund that places bets based on sweeping views on economic policy and geopolitics -- an investment strategy blunted by low interest rates and serene markets. What's more, her desk at the California bond manager sat next to Bill Gross, the famously hard-charging investment chief whose 2014 exit sent shock waves through Wall Street.

The 44-year-old manager appears to have succeeded: She now oversees some $7.5 billion in hedge-fund investments at Pimco.

A difficult stretch for so-called global macro hedge funds like Ms. Wang's Pimco Absolute Return Strategy has forced some to lower fees amid meager returns. According to HFR, macro hedge funds have produced an average return of just 1.6% in 2017 through November.

Ms. Wang, who spent 12 years at hedge-fund firm HBK Capital Management before joining Pimco, has fared better. One of her PARS funds was up 3.5% through October, according to a recent HSBC hedge-fund performance report, in part because she bet on Emmanuel Macron's victory in the French presidential election this past May.

"I don't consider myself an old-style macro investor," she said. "The toughest challenge for an investor, but especially a traditional macro investor, is to have the intellectual flexibility to understand the landscape has changed. You have to adjust."

Dan Ivascyn, Pimco's investment chief, said two traits that have made Mr. Gross a successful investor -- a prodigious work ethic and a willingness to hold colleagues to a high standard -- have served Ms. Wang well, too. She also wasn't intimidated by Mr. Gross."She's tough," Mr. Ivascyn said.

Mr. Gross's success had fascinated Ms. Wang, who wanted to learn how the bond investor was able to churn out solid returns even as his flagship mutual fund, Pimco Total Return, swelled to more than $200 billion in assets under management. When news broke that Pimco's macro hedge-fund manager had left the firm, she volunteered to step in.

"A light went on in my head," she told the Journal in December. "That would be an interesting job for me: I could manage a hedge fund and sit next to Bill Gross."

-- Justin Baer

(END) Dow Jones Newswires

December 30, 2017 07:00 ET (12:00 GMT)

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