How Multi-Million Dollar Pay Packages Sank a Small London Hedge Fund

The decision by Eisler Capital to close its flagship multi-strategy hedge fund, just four years after launch, highlights the challenges facing London-based funds trying to grow rapidly and emulate large, established U.S. competitors, according to investors and industry insiders. Rising staff costs had begun to eat into trading profits, leaving the fund unable to sustain its business model.

Experts warn that the $4 trillion hedge fund sector is increasingly being absorbed by established firms, potentially concentrating public pension and retirement money in the hands of a few players with outsized influence over financial markets.

Eisler’s strategy was modeled on U.S. multi-strategy giants such as Citadel, Balyasny, and Millennium Management, which operate multiple strategies under a single roof. Crucially, Eisler also adopted a pass-through fee structure, passing fund costs — including employee compensation — onto investors. This meant that, in addition to the standard 15–20% performance fees, investors were covering the fund’s operational and compensation expenses, according to investor documents reviewed by Reuters.

Analysis of Eisler’s publicly reported accounts shows the fund’s revenues grew more than 40% between 2023 and 2024. However, staff costs surged over 900% in five years, far outpacing profits and reducing net returns for investors.

“Multi-strategy is really the ultimate test,” said Harald Berlinic, CIO at Berlinic-Erben Family Office, a hedge fund investor. “How much of the gross profits can you actually capture without losing investors? For a new player, it’s tough to strike a balance, because established firms can pay high fees to attract top talent.”

Eisler declined to comment, as did Citadel, Balyasny, and Millennium.

In its final investor letter in October, Eisler highlighted the burden of compensation costs. Three recruitment professionals told Reuters — on condition of anonymity — that portfolio managers hired at salaries exceeding $10 million in New York and London this year could prove costly for investors if exceptional trading returns weren’t achieved.

Blaming the Model?

Barclays research shows that in pass-through funds, investors typically receive less than half of trading profits. While multi-manager funds once outperformed the broader industry, net returns have recently lagged fixed-fee peers, according to a client note from July.

For some European pension funds, pass-through fees have historically been excessive. “Europe’s largest, most reputable pension funds often prefer lower-fee managers with slightly lower net returns over high-fee, high-net-return managers,” said Michael Oliver Weinberg, former APG pension fund manager and deputy CIO at a family office.

London is home to several large and successful hedge funds that aren’t multi-strategy, including Rocos Capital Management and Marshall Wace. Some, like Man Group’s 1783 Strategies Fund, operate partial pass-through models for a broader fund cohort, offering lower fees. Man Group, Rocos Capital, and Marshall Wace declined to comment.

Berlinic noted that some investors may give established pass-through funds the benefit of the doubt, but high fee levels make it difficult for new entrants.

Reuters analysis suggests that the rise of multi-strategy funds has contributed to volatility in share prices on earnings days in 2024, reaching the highest level since 2016.

The Global Hedge Fund Landscape

New York remains the hub for pass-through multi-manager funds, with 911 managers compared with 171 in London. Over the past five years, roughly 85% of hedge funds have been concentrated in New York City. Dubai and Abu Dhabi are emerging as rival centers.

“Crowding in these markets has always been visible,” Berlinic said. “The question is whether the big players will dominate further and whether that poses a problem for markets. Possibly, if they control certain strategies or market segments.”

Eisler’s closure serves as a cautionary tale: even rapid growth and top-tier talent cannot always offset the pressures of soaring compensation costs and complex fee structures in today’s highly competitive hedge fund environment.