Elite squared

27 January 2016 By Richard Beales

Even the richest 0.1 percent have their own 0.1 percent to look up to. An annual ranking of the 20 most profitable hedge fund managers, released this week by LCH Investments, suggests they have made almost as much as the rest of the industry combined. It’s another reason for would-be investors in such funds to be cautious.

The hedge-fund industry manages about $3 trillion globally. Research outfit HFR reckons there are about 8,500 funds. The top 20, by LCH’s tally, hold about 15 percent of the assets. This exclusive group has made almost $400 billion for investors, net of fees, since they started. The rest have generated less than $440 billion between them.

Ray Dalio’s Bridgewater Associates tops the list. His 40-year-old Pure Alpha fund, with $82 billion under management, has made net gains since inception of $45 billion, pipping George Soros’ flagship fund. Paul Tudor Jones’ Tudor BVI Global fund ranks 20th.

Another prominent manager, Bill Ackman, broke into the top tier for 2014, but has dropped out after a painful 2015. His Pershing Square Capital Management fund lost more than 20 percent and his assets shrank from around $20 billion to $15 billion.

Absolute dollars aren’t everything, and LCH’s ranking is influenced by longevity and the size of funds, as well as returns. For long-term investors, though, staying power is important. On a rough calculation over, say, 20 years, the top performers may not have done much better than the average fund returns compiled by HFR. It’s hard, however, to invest in an average fund, and such industry-wide figures may have a bias toward successful managers given that subpar performers often close.

Ackman’s rise and fall is instructive. Some investors can bear the slings and arrows of bold, concentrated investments like his punt on Valeant Pharmaceuticals that may win or lose big. Others expect greater consistency. There’s another message in the annual ultra-elite list, too. Bright, long-burning stars are hard to come by in the investing firmament. As in any walk of life, hedge-fund bosses have their own Tudor Joneses to keep up with.

 

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