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The all-time top 20 best-performing hedge fund managers made $23.2bn for their investors last year, while the rest of the industry lost $64.2bn in a tumultuous period for financial markets.
Those top managers have made nearly half of the industry’s gains, after fees have been deducted, since it began, according to new research by LCH Investments, the fund of hedge funds run by the Edmond de Rothschild group.
They estimate the industry has made $1.1tn since inception, of which $500.3bn was made by the top 20, despite them only managing 17.9 per cent of the assets. The figures were compiled as part of LCH’s annual list of the all-time best performers.
Hedge funds suffered one of their worst years since the financial crisis last year as market volatility in the fourth quarter wrongfooted many managers. Hedge funds ended the year down 3.42 per cent, the worst performance since 2008, with over half posting negative returns, according to the data provider Preqin.
“In contrast to the losses made by hedge funds overall, the top 20 managers actually made some money for their investors in 2018,” said Rick Sopher, chairman of LCH Investments. “This is an impressive performance. Most managers in the top 20 either managed to stay out of trouble when equity markets fell sharply toward year end, or had an investment approach that was not linked to the direction of equity markets.”
One of the biggest changes to the annual list was the first-time appearance of Renaissance Technologies, which came in at number 17 after making $4.7bn for its investors after fees in 2018 — second only in annual return to Bridgewater, the top-ranked fund, which made $8.1bn.
Chart showing strong performance of top 20 hedgefunds in 2018; biggest gain posted by Bridgewater with gains of $8.1bn
Two Sigma, which, like Renaissance Technologies, trades using computer algorithms, re-joined the list in 19th spot. They took the place of Egerton Capital, run by John Armitage, and Sir Chris Hohn’s TCI, both of which invest in equities and were newcomers to the list last year.
The top three managers — Bridgewater, Soros Fund Management and Citadel — held steady from last year. Lone Pine, Steve Mandel’s fund, was one of the biggest movers, dropping from fourth to seventh place.
Not all of the top 20 made money last year. Lone Pine, Andreas Halvorsen’s Viking, David Tepper’s Appaloosa, Louis Moore Bacon’s Moore Capital, John Paulson’s Paulson & Co and King Street Capital all lost money in 2018, according to LCH.
“In 2018, the hedge fund managers who did best for their investors were typically the managers using systematic and trading approaches without taking significant equity market risk, so that the results did not depend on the direction of equity markets,” said Mr Sopher.
“The inclusion of Renaissance Technologies for the first time reflects the theme that the most successful investment managers have harnessed the power of technology,” he added. “More than half of the top 20 use technology very intensively, whether to identify investment ideas, either on a macro or individual stock level, or to monitor and control the risk factors.”
The list ranks hedge funds based on how much money they have made since their inception for investors, after fees. The top-performers, Bridgewater and Soros Fund Management, have been in the market since 1975 and 1973, respectively, giving them a significant head start, even though the list stopped including new profits from the Soros fund in 2017.
LCH also found how concentrated performance in the industry can be: acolytes of Julian Robertson, the founder of Tiger Management, have made $101bn in gains for their investors. That includes Lone Pine and Viking. Managers who have worked for George Soros have also been successful, raking in $56bn for their investors.
Taken together, the alumni of Mr Soros and Mr Robertson count for 14.3 per cent of all money made by managers since the inception of the hedge fund industry, LCH found.
