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Hedge Fund 100A decade ago Bridgewater Associates didn’t really think of itself as a hedge fund firm. The Westport, ­Connecticut, enterprise — which Raymond Dalio founded in 1975 to advise corporate clients on how to manage currency and interest rate risk — began managing money in 1987 when the World Bank hired it to run a $5 million fixed-­income account. Bridgewater launched its Pure Alpha hedge fund during the early 1990s, but the strategy didn’t start to take off with investors until that bullish decade came to an ignominious end. So in 2002, when the editors of ­Institutional Investor were putting together our first ranking of the world’s largest single-­manager hedge fund firms by assets under management, it’s understandable that we missed Bridgewater, despite the fact that it had some $2 billion in Pure Alpha managed accounts.

Today it would be impossible to make that same mistake. With $58.9 billion in hedge fund assets, Bridgewater is the biggest hedge fund firm in the world, leading our tenth annual Hedge Fund 100 ranking.

Bridgewater’s ascent parallels the rise of institutional investor interest in hedge funds during the past decade. Pension funds, foundations, endowments and sovereign wealth funds — driven by a quest for returns and the desire to diversify out of traditional stocks and bonds — have come to invest more and more of their assets in hedge funds. Many have also started to eschew funds of hedge funds, the traditional starting point for institutional investors looking to get into this alternative asset class, preferring to invest directly in a portfolio of hedge fund firms that they construct themselves.

Hedge funds, which started out catering mostly to high-net-worth individuals, family offices and smaller foundations and endowments, are increasingly keen to attract this newer investor base — and their larger investment tickets. For their part many pension funds and other institutions are beginning to look at hedge fund firms along the same lines as they consider traditional asset management firms, targeting those they perceive to be “institutional quality” organizations.

“When it comes to investing directly in hedge funds, institutions seem to take comfort in managers with the size and infrastructure to mitigate reputational risk and with some ability to make tactical asset-­allocation decisions,” says Girish Reddy, co-­founder and managing partner of $6 billion, New York–based fund-of-hedge-funds firm Prisma Capital Partners.