LONDON, U.K.: When Eisler Capital set out to become London's answer to America's multi-strategy hedge fund giants, it bet big on rapid growth and top-tier talent. Four years later, the firm shuts down its flagship fund, which is undone by soaring staff costs and a fee model that has left investors with dwindling returns.

The collapse highlights how hard it is for smaller, newer hedge funds to replicate the scale and profitability of U.S. titans such as Citadel, Balyasny, and Millennium Management, which dominate the US$4 trillion global hedge fund industry. Investors and insiders say rising costs and sky-high pay are tilting the playing field toward established players, leaving smaller rivals struggling to survive.

Eisler had pivoted in 2020 to the multi-strategy model, combining different trading teams under one roof. It also adopted a "pass-through" fee structure, which passed expenses — including salaries and bonuses — directly to investors on top of the usual 15 to 20 percent performance fee, according to an investor document seen by Reuters.

Initially, the approach looked promising. Eisler's turnover rose more than 40 percent between 2023 and 2024, Reuters analysis of its filings shows. But staff costs surged more than 900 percent in five years, wiping out profits and eroding investor returns.

"Multi-strats strike me as the final frontier... what percentage take of gross profits can we squeeze investors on without losing them?" said Harald Berlinicke, CIO of the Max-Berlinicke-Erben Family Office in Berlin. "It's not an easy balancing act to get right for a new kid on the block, as the sky-high fees the established players can charge give them an edge in attracting the right talent."

Eisler declined to comment. Citadel, Balyasny, and Millennium also refused to respond to Reuters requests.

In its final investor letter, Eisler cited the burden of compensation costs as a key factor in its closure. Recruiters said portfolio managers are now commanding record pay packages, with some star traders in New York and London earning over $100 million a year. Such salaries can devastate smaller funds when performance lags.

According to Barclays research, investors in pass-through funds now receive less than half of total trading profits. That was acceptable when returns outperformed, but recent performance has slipped behind funds with traditional fixed-fee structures.

European investors, especially pension funds, have long balked at such high-cost models. "Some of the world's largest and most prestigious pension funds prefer lower net-returning managers with lower fees," said Michael Oliver Weinberg, deputy CIO of a family office and former APG executive.

London remains home to successful hedge funds like Rokos Capital Management and Marshall Wace, but according to PivotalPath data, New York continues to dominate, hosting over 900 hedge fund managers compared to London's 171.

As multi-strategy firms grow larger, their influence is shaping markets in new ways. Reuters analysis shows stock price swings on earnings days in 2024 were the biggest since 2016, reflecting concentrated bets from a few powerful funds.

"Crowding in markets has always been something to watch out for," Berlinicke said. "The question is whether large players will dominate — and possibly distort — entire strategies or parts of the market."