The hedge fund industry is undergoing a profound strategic shift, with top multi-strategy hedge funds turning their focus to private markets like private credit in search of new growth opportunities.

Reports on November 12 reveal that prominent firms such as Steve Cohen's Point72 Asset Management and Izzy Englander's Millennium Management are actively expanding into private credit, challenging the market dominance of traditional alternative asset managers 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 bolster this segment, the firm earlier this year hired Todd Hirsch, former senior managing director at Blackstone, to lead its private capital business. Millennium Management, meanwhile, is raising $5 billion for its first private markets fund, targeting illiquid corporate and asset-backed bonds, real estate, and other low-correlation strategies.

This strategic pivot comes amid dual pressures: a scarcity of quality assets in public markets and plateauing growth in hedge fund industry assets. Although global hedge fund assets have surpassed a historic high of $5 trillion, some leading funds have paused new inflows, with D.E. Shaw, Point72, Citadel, and Bridgewater returning billions to investors.

The contraction in public markets is driving this transformation. Bank of America research shows the number of U.S. public companies has halved since 2000, while venture-backed private firms have grown 25-fold. Since the 2008 financial crisis, private credit has flourished as banks retreated, with many transactions—like structured credit and significant risk transfer deals—closely resembling hedge funds' public market operations.

Synthetic risk transfer (SRT) transactions have surged over the past year, reaching $673 billion in total bank synthetic securitizations. Craig Bergstrom, CIO of Corbin Capital Partners, noted: "In SRTs, managers active in structured credit naturally extend their expertise—it's a logical progression."

Talent and scale are critical differentiators. Hedge fund executives argue their complex risk-pricing skills translate well to illiquid assets, despite longer investment horizons. D.E. Shaw, Point72, Millennium, and Jain Global collectively manage over $195 billion, with established infrastructure for complex trades and risk management.

D.E. Shaw pioneered this space, launching its first private credit fund in 2008 focused on energy financing. As Basel III forced banks to reduce proprietary trading, the fund expanded, now raising over $5 billion, including a $1.3 billion vehicle in May. Jain Global formed a new team led by ex-D.E. Shaw portfolio manager Syril Pathmanathan, raising $600 million for regulatory-arbitrage trades.

However, Bergstrom cautions: "Scale, leverage, and infrastructure matter—new entrants lack these. Direct lending returns hinge on funding costs, which correlate with portfolio size, diversification, and experience. This is a real disadvantage for newcomers."

Risks lurk in opaque assets. High-profile bankruptcies like First Brands Group and Tricolor have rattled credit markets, with Millennium's Sean O'Sullivan-led team booking a $100 million writedown on First Brands. Marcus Storr of FERI remains skeptical: "This looks like oversized firms chasing the next trend—we see little substance behind the shift."

Bruno Schneller of Erlen Capital Management highlights cultural challenges: "Public credit managers' speed and derivatives expertise don't fully align with private credit's relationship-driven, multi-year horizon. The real test is whether these firms can adapt incentives and decision-making for slower returns."