The topic of hedge funds has become increasingly popular among investors and traders in recent years. During the Big Short Squeeze in early 2021, retail investors on the Reddit channel WallStreetBets exposed morally questionable activities of hedge funds.
There was a general search for knowledge among the investing community due to this. In what ways do hedge funds differ from institutional investors? A multi-strategy alternative investment approach involves heavy short positions and other derivatives into the risk-versus-reward equation.
What is the identity of these large hedge fund managers who have the power to move markets?
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Hedge Fund Managers by Size
Assets under management (AUM) are used to measure hedge funds. In this context, the term refers to the total amount of investment funds collected from investors. It represents strength for a fund to have a higher AUM than a fund with a lower total investment dollar amount.
Ultimately, the stock market is a battle between bulls and bears, where supply and demand rule. As these funds gain more money, they will be able to sway investor opinion and tip the supply/demand scales in their favor.
Listed below are the largest US hedge fund managers.
The BlackRock Group
In the world of hedge funds, BlackRock is one of the most well-respected companies, often discussed in the world’s leading financial media, and founded by moguls such as Larry Fink, Susan Wagner, and Robert S. Kapito.
There are about $9.5 trillion in assets under management by the hedge fund firm, which has grown so large that its assets under management can no longer be measured in billions.
With massive success in financial markets, it grew into the world’s largest fund manager from risk management and fixed-income firm.
The firm manages several hedge funds, in addition to offering index funds and passively managed investment portfolios to the general public, which has helped it amass such a high AUM.
AQR Capital Management
Cliff Asness, David Kabiller, John Liew, and Robert Krail founded AQR Capital Management, which is a highly regarded firm in the financial market. From its headquarters in Greenwich, Connecticut, the firm serves institutional investors, financial advisors, and high-net-worth individuals.
The firm may be only a couple of decades old, but it has grown to epic proportions, managing more than $248.9 billion in assets.
Investments in the fund are made in a variety of ways, including traditional securities and derivatives. In common with several other hedge fund managers, the firm uses a quantitative or systematic approach to investing, which requires a detailed understanding of math and data analysis.
The Bridgewater Associates
According to its website, Bridgewater Associates, founded in 1975 by billionaire investor Ray Dalio, has amassed more than $150 billion in assets under management as of March 2021.
It should be noted, however, that Dalio and his fund management firm are not exactly what most retail investors imagine when they think of hedge funds. These funds have a relatively negative reputation among some investors.
In contrast, Dalio and Bridgewater are celebrity investors, Bridgewater once ranked among Fortune magazine’s top five private companies in the country, and Dalio has been the subject of ai-CIO.com’s call to name him “the Steve Jobs of Investing.”
Despite Bridgewater’s involvement in short selling – it made $14 billion in a short-selling frenzy on European stocks – it makes its investment decisions from a macroeconomic perspective. Therefore, the firm invests based on the state of the global economy rather than picking individual stocks. Using his investment strategies known as Pure Alpha and All Weather, Dalio and his firm bet on the market as a whole.
An annualized return of 11.5% is generated by Bridgewater Associates, according to Attic Capital.
Renaissance Technologies, Inc.
Founded in 1982 by Howard L. Morgan and Jim Simons, Renaissance Technologies manages more than $165 billion in client assets. Over 150 of the firm’s employees are tasked with providing investment advisory services, which are based in Long Island, New York.
The firm’s Medallion fund, which is one of Wall Street’s most profitable and closely guarded secrets, is listed as one of the most successful in the world by Benzinga.
With the use of complex mathematics and data science, Renaissance Technologies, often abbreviated as RenTec, aims to gain a technological advantage in the market.
Although math and data science form the core of the firm’s technical approach, little is known about the exact investment strategies it employs. In the end, the Medallion fund is an invite-only investment option available only to company employees.
Approximately 66% of annualized returns are generated by the firm’s Medallion fund, according to Institutional Investor.
The Elliott Asset Management Company
Founded in 1977 by Paul Singer, Elliott Asset Management is one of the largest asset management firms on Wall Street, controlling over $48 billion.
It is well known that Singer is an activist investor who purchases large stakes in publicly traded companies that need a boost in their direction. Singer and his fund use their substantial stakes in companies to force them to follow their vision of a better reality for investors once they have acquired substantial stakes in the companies.
Approximately one-third of the fund manager’s portfolio is invested in distressed securities, which represent companies or governments in financial difficulty.
Two Sigma Investments
With approximately 20 years of experience providing services to institutional and high-net-worth investors, Two Sigma Investments has a wide range of expertise. They have more than $68.90 billion in assets under management. It is one of the more recent hedge fund managers on the list.
All three founders of the firm have extensive experience making successful market moves, including David Siegel, Mark Pickard, and John Overdeck.
In developing and following trading strategies, the company relies on technological innovation. In particular, Two Sigma’s trading strategies incorporate artificial intelligence, machine learning, and distributed computing, which has proven successful since the company was founded.
The highly technological approach to investing appears to be paying off, with an annualized return of more than 30%.
Millennium Management
Investing mogul Israel Englander founded Millennium Management in 1989. With $48.3 billion under management, Millennium has amassed a respectable amount of assets.
In Millennium’s investment management style, fundamental and technical analysis are placed at the center of a variety of investment strategies ranging from low-risk fixed-income strategies to high-speed quantitative and derivatives strategies. As with a classic hedge fund, Millennium invests heavily in fundamental and technical analysis.
By combining these strategies, higher-risk investments, such as derivatives, are offset by lower-risk investments, such as fixed-income securities. The Wall Street Journal reports that the company’s profitability drops by about 10% annually as a result of that balance.
D.E. Shaw & Co.
Another goliath hedge fund manager is David E. Shaw’s, D.E. Shaw. According to its website, the New York City-based firm has amassed an investment portfolio worth around $55 billion.
To locate and exploit stock market anomalies, the fund management company develops complicated mathematical models and sophisticated computer programs.
Approximately $35 billion of the hedge fund’s portfolio is invested in derivatives, with the remaining $20 billion in long-oriented traditional investments such as stocks, bonds, and exchange-traded funds (ETFs).
Its investors benefit from average annualized gains of 10.8%, according to Institutional Investor.
Tiger Global Management
As another relatively young hedge fund manager that has made a name for himself on Wall Street, Tiger Global Management was founded in 2001 by billionaire investor Chase Coleman. For its clients, the firm manages approximately $65 billion in investments.
The firm invests in a range of assets, including stocks, bonds, and derivatives, but the vast majority of its investments are in technology. The company primarily invests in software, the Internet, consumer technology, and financial technology.
Investing in technology and focusing on its strategy when investing in the sector have delivered Value Walk customers an annualized return of 27%.
Davidson Kempner Capital Management
Marvin H. Davidson founded Davidson Kempner in 1983, an investment firm with a long history of success.
Davidson Kempner has a fundamental approach to investing, as opposed to most hedge funds, which take a technical approach. The company’s investment decisions are driven primarily by events. By doing this, the company looks for events that may cause the price of assets to rise or fall and makes trades based on the likely movement as a result of the event.
Throughout the company’s history, the strategy has proven to be successful. In addition to having amassed a significant amount of assets to work with – currently more than $42 billion in AUM – it is also renowned for its ability to generate attractive returns.
Citadel
Citadel is likely one of the first names that spring to mind when thinking of big hedge fund managers if you are knowledgeable about the social side of Wall Street.
Citadel was founded by Ken Griffin in 1990 and has grown into a major asset manager with assets under management of approximately $38 billion as of October 2020, according to the company’s website.
As a short seller, Citadel is best known for betting against the success of certain assets; however, that is not the only strategy they employ. Through its investments, it has also developed long-term relationships with thousands of companies and institutions.
Reuters reports that the firm generates annualized returns of more than 18% for investors.
Lone Pine Capital
Founded by Stephen Mandel in 1997, Lone Pine Capital is a private equity firm. The fund manager offers a variety of long-only funds in addition to traditional long-and-short investments. Similarly to other hedge fund managers, Lone Pine Capital is a private investment management firm that caters to institutions and ultra-wealthy investors.
With only about 50 employees, the fund management firm controls more than $27.5 billion.
The founder of Lone Pine Capital, Stephen Mandel, worked at Tiger Global Management for over 30 years before starting his own fund management company.
Point72 Asset Management
Steve Cohen founded S.A.C. Capital Advisors in 1992, which planted the seeds for Point72 Asset Management. A new brand, Point72 Asset Management, was established in 2014 to represent the firm’s investment activities.
With more than 1,650 employees, the firm manages more than $22.2 billion in assets for its investors.
There are three main strategies followed by the firm:
- Traditional Long/Short Investing. Short/long investing involves buying stocks when it’s believed the company’s value will increase and selling them when it’s believed the value will decrease.
- Macro Investing. Macro investing involves holding long or short positions based on macroeconomic conditions. Wall Street made Ray Dalio famous with this type of investing.
- Systematic Investing. The goal of systematic investing is to eliminate all judgment calls from the investment process. Investments must fit within a set of trading rules to cut.
Baupost Group
Another major Wall Street player is the Baupost Group. The fund was established in 1982 by Harvard Professor William Poorvu and his partners Howard Stevenson, Jordan Baruch, and Isaac Auerbach. When Poorvu founded the firm, Seth Klarman was asked to lead it, and he still serves as its president.
A total of $12.32 billion in assets are currently held by the firm.
Although the fund is well known for taking a long-term value-oriented approach to investing, little else is known about how the fund operates on Wall Street due to its high level of secrecy. Similarly, the company’s website offers little value, stating that the site is intended solely for use by investors and employees of the company.
Nevertheless, there must be something to the firm’s strategy. According to Gurufocus, investors in the fund are expected to receive annualized returns of approximately 20%.
Appaloosa Management
With approximately $6.9 billion in assets under management, Appaloosa Management was founded by David Tepper and Jack Walton in 1993.
Indeed, the firm occasionally invests in traditional securities, as well as taking advantage of derivatives from time to time. How is it different?
In terms of investments, Appaloosa Management primarily focuses on distressed debt. It involves the purchase of debt owed by struggling companies at a steep discount with the hope that the company will turn around and be able to repay the debt in full, plus interest.
Investing in the company’s stock could result in losses if the company cannot recover and eventually files for bankruptcy. It might seem risky to invest in these companies, but distressed debt offers a safety net compared to stock. In corporate defaults, assets are liquidated, and debtors are first repaid.
Appaloosa invests in distressed debt to generate two revenue streams, generally profiting from its investments regardless of how well the underlying companies perform.
Overall, Sure Dividend reports an annualized return rate of 11.9% for this method of investing.
Pershing Square Capital Management
In 2003, Bill Ackman founded Pershing Square Capital Management. Ackman is renowned for his work as an activist investor, committing large sums to struggling businesses, pushing them in the right direction, and generating substantial profits.
Pershing Square is now one of the most well-respected hedge funds, with many retail investors reading its filings and trying to mimic its moves.
On this list, the fund is currently a relatively small fish in a large ocean, but its investment portfolio is impressive, amounting to $10.7 billion.
In hiring for Pershing Square, Ackman’s approach is as unconventional as his investment strategy, but it appears to be working. While many of the firm’s employees have finance backgrounds, Ackman has hired a former fly fishing guide, a former tennis pro, and a man he met in a cab.
Final Word
The ability to identify the largest hedge funds is more than just an interesting read; it is an opportunity. A number of these funds are known for generating significant returns, which is why they have attracted billions – or, in BlackRock’s case, trillions – of dollars from some of the world’s richest individuals and institutions.
The Securities and Exchange Commission requires hedge fund managers to report their portfolio activity similarly to other institutional investors. Investing in these filings may be a good way to find the next ample opportunity in the stock market.
Nevertheless, it is important to remember that hedge fund managers also make mistakes. You should use their filings as a guide, not as a law, if you intend to follow in their footsteps. Using hedge fund moves as a starting point for investment ideas is acceptable, but you should always research before investing.
