Hedge Funds are privately owned companies that pool investors’ money and reinvest them in complicated instruments to outperform the market.
The assets managed by hedge funds have increased over the years with assets under management (“AUM”) at over USD3 trillion (as at end 2019). The United States is the key player of the hedge fund industry accounting for 70% of AUM. Over 50% of U.S. hedge funds are located in New York, California and Texas. The five largest ones as listed by ADV Ratings include:
(1) Bridgewater Associates (“BA”)
Headquartered in Westport, Connecticut, BA is the largest hedge fund in the world with AUM exceeding USD 160 billion as at end February 2020. It serves global institutional clients including pension funds, university endowments, foundations, supra nationals, sovereign funds and central banks. Ray Dalio is the founder and the firm currently has 1,700 employees.
(2) Renaissance Technologies (“RT”)
RT LLC is an American quantitative hedge fund headquartered in New York. RT is the most profitable hedge fund with over USD68 billion in AUM. Jim Simmons is the founder and he made USD1.6 billion personally in 2018.
(3) Man Group
Man Group Plc is a British hedge fund providing alternative and private market products. It has AUM of approximately USD62 billion as at end June 2019. The Group’s market capitalization was GBP2.3 billion as at end January 2020. Luke Ellis is the CEO of the Group.
(4) AQR Capital Management (“AQR”)
AQR LLC is the world’s 4th largest hedge fund with assets of USD61 billion. It employs over 1,000 people located in several cities. Led by Clifff Asness, it is headquartered in Greenwich, Connecticut, U.S.A.
(5) Two Sigma Investments (“Two Sigma”)
With 1,500 employees and AUM of USD43 billion it offers scientific methods to investment management. The company was established in 2001 with John Overdeck, David Siegel and Mark Pickard. It is based in New York with offices in major financial centres.
Others in the top 10 include: Millennium Management; Elliott Management; BlackRock; Citadel; and, David Kempner Capital.
Recently, hedge funds have been accused of raking in billions from market bets during Covid-19. Ruffer Investment, founded by Jonathan Ruffer, told clients it made USD2.6 billion during Covid-19 induced stock market collapse. Another U.S. hedge fund made 4,144% return on betting on a stock market collapse. Universa Investments fund, advised by Black Swan author Nassim Taleb made a return of 3,612% in March alone. Not all hedge funds made money, BA lost about 16% in March or a -23% loss for the first three months of 2020.
The U.S. should not bail-out any billionaire or hedge fund. It will be pathetic if they do. It should, however, seek to tax the ones with “super-profits” and use the revenue for assisting small businesses and employees who are likely to lose their jobs. In fact, a global ban on short-selling should be in place. Otherwise, markets will slide down further with bets made by profit-oriented traders who have no moral compass of profiting from an abject global tragedy.
1. World’s Top 10 Hedge Funds 2020, ADV Ratings www.advratings.com/
2. Hedge Funds ‘raking in billions’ during coronavirus crisis by Rupert Neate, 9 April 2020, The Guardian
3. The Winning and Losing Hedge Funds, 6 April 2020, Forbes