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Manna from hedging

"The best way to keep money in perspective," Louis Rukeyser, the host of a popular U.S. weekly television investment show, has said, "is to have some."

Top hedge fund managers sure must have a lot of perspective. Just to make Institutional Investor's second annual list of the 25 highest-earning hedge fund managers, these alpha males (and all were men) had to haul in $30 million in 2002. No fewer than seven in this elite group reaped more than $100 million -- and this was in a lousy year for the markets!

Then again, the appealing thing about hedge funds is that they're not meant to correlate with stock markets. Instead, they pursue absolute returns. And 2002 was a good year to part company with the stock markets for the long side: The Standard & Poor's 500 index fell 23 percent; the Nasdaq composite index, 32 percent; and the Dow Jones Stoxx 600 index, 32 percent.

Hedge funds by and large did comparatively well. As a group, they finished somewhere between 3 percent up or down, depending on the database. In short, being contrarian paid off. And for some hedge fund clients -- and not a few hedge fund managers -- it paid off in extraordinary fashion.

Bruce Kovner, who started Caxton Associates ($10 billion in assets) in 1983, gained more than 26 percent net of all charges in his flagship Caxton Global Investments fund. That was remarkable. But what he earned for his efforts is more so. Count the 2 percent management fee and a 25 percent performance levy and add in the gains on the substantial capital that Kovner has invested in his own funds, and according to our calculations, he waltzes away with at least $600 million from his fund activities, making him No. 1 on our list. Last year Kovner took home an estimated $500 million, enough to earn him second place on that list, behind Soros Fund Management's George Soros.

Kovner is in rich company. He's followed by James Simons of Renaissance Technologies Corp., whose $5 billion-in-assets Medallion fund also gained 26 percent, net of his 5 percent management fee and a 36 percent performance fee. Simons' payday: $287 million. Next on the list is Tudor Investment Corp.'s Paul Tudor Jones II ($250 million), followed by Citadel Investment Group's Ken Griffin ($225 million) and Duquesne Capital Management's Stanley Druckenmiller ($175 million). "All of these people have been quite successful for many years, so they manage a lot of assets, and they had big winning trades in 2002," notes Antoine Bernheim of

Altogether, 14 of this year's top earners work for firms that rank among the 25 largest hedge fund shops (see page 53). One notable exception is Jeffrey Gendell's Tontine Partners, whose $600 million in assets at year-end fell short of the ranking minimum. But Gendell is sole owner of the firm and his biggest fund posted a net return of 33 percent last year: That combination landed him at No. 25 on the best-paid list, with $30 million.

In a display of upward mobility, eight of this year's top 25 are new to the list. Clifford Asness (No. 23), who earned at least $37 million, is a relative newcomer to the hedge fund world. Formerly in charge of quantitative research for Goldman Sachs Asset Management, he launched AQR Capital Management in 1998 and now manages more than $3 billion. No. 15 Matthew Tewksbury ($48 million) bought Trout Trading Management Co. from Monroe Trout (No. 9 on last year's list) in early 2002 and renamed it Tewksbury Capital Management. Patrik Brummer, founder of Stockholm-based Brummer & Partners Kapitalförvaltning, the only non-U.S. manager on the list, earned $32 million in 2002, landing him at No. 24. Other newcomers include ex­Soros Fund Management chief trader Druckenmiller, whose No Margin fund had an 11 percent net return; No. 9 Gilchrist Berg of Jacksonville, Florida­based Water Street Capital, who earned at least $95 million; Kenneth Tropin of Graham Capital Management, who collected $65 million and ranks at No. 11; J. Carlo Cannell of Cannell Capital, at No. 13, with $56 million; and managed-futures maven and Boston Red Sox owner John Henry ($60 million) of John W. Henry & Co., who hits No. 20.

Yet speaking (very) relatively, times were tough for even elite hedge fund managers. The average take among the top 25 dropped about 30 percent, to $110 million from $158 million. And downward mobility was conspicuous this year: Many of last year's top earners failed to qualify (though last year's list was longer, with 30 names). Noteworthy dropouts include Soros, ESL Investments' Edward Lampert and Moore Capital Management's Louis Bacon.

Perhaps they lacked perspective.



Caxton Associates

Four years ago Bruce Kovner decided he needed a new home, so he bought the brick neo-Georgian­style headquarters of the International Center of Photography on New York's swank upper Fifth Avenue. Price tag: $17.5 million -- or a little less than what Kovner, chairman of Caxton Associates, raked in every two weeks last year. In one of the most difficult years for hedge fund managers in memory, the 58-year-old proved he belongs among the ranks of the greatest investors of all time. Kovner, whose firm runs $10 billion, saw his Caxton Global Investments fund, a macro hedge fund, rise 26.45 percent, while GAMut Investments, his other big fund, was up 23.07 percent; both charged a 2 percent management fee and a 25 percent performance fee in 2002. Kovner hasn't had a down year since 1994, when he lost 3 percent. That was the year of the bond bear market, when many macro investors suffered double-digit declines. Last year Kovner racked up his biggest gains from financial instruments, stocks and currencies, while commodities and energies contributed modestly, according to the firm's year-end report. A big bettor as an investor, Kovner is well known in political circles for his conservative leanings. Late last year he was named chairman of the board of trustees of the conservative think tank American Enterprise Institute after serving as vice chairman for the preceding two years. The fund manager reportedly spent $2 million to help bankroll illustrator Barry Moser's five-year project to create the Pennyroyal Caxton Bible, an elegant version of the King James Bible that is the first in more than a century to be fully illustrated by a single person.



Renaissance Technologies Corp.

Bull market or bear market meltdown, one constant remains: James Simons of East Setauket, New York's Renaissance Technologies Corp. will come through with huge returns. The manager of the $5 billion Medallion fund posted a 25.8 percent gain in 2002. And that's after fees -- an eye-popping 5 percent management charge and a 36 percent performance tab, which he raised last year from 20 percent. Even that hike didn't quite satisfy him: Beginning this year outside investors will have to share 44 percent of the gains with Simons. But hey, who's complaining? Simons was up 33 percent, net of fees, in 2001 and 98.5 percent the previous year. He has racked up annual compound gains of about 40 percent over the past ten years. The 64-year-old is known for arcane computerized trading systems -- the details of which he won't discuss -- that draw on the mathematics background of this leverage-loving onetime cryptanalyst. At year-end Simons, whose capital under management is $5 billion, had some $12.3 billion invested in 1,434 individual stocks. His biggest holdings: Citigroup, General Electric Co., American International Group, Merck & Co., Pfizer, Johnson & Johnson and Abbott Laboratories. Simons has a BS from the Massachusetts Institute of Technology and a Ph.D. in mathematics from the University of California at Berkeley. He has taught at Harvard University and M.I.T. and is a former chairman of the math department at State University of New York at Stony Brook.



Tudor Investment Corp.

Put it this way: Paul Tudor Jones II hasn't had a down year in the 16 years that he has run his global macro hedge fund. Last year, while most investors -- and hedge fund gurus -- suffered, Jones's $2.7 billion Tudor BVI Global Fund racked up a 21 percent­plus return, net of his 4 percent management fee and 23 percent performance fee. Jones, 48, whose firm runs nearly $7 billion, including more than $3 billion in U.S. equities, exploited the global bull market for bonds as well as the euro's strengthening against the dollar. He first earned his reputation for market savvy back in 1987 for calling the market crash and parlaying his heavy short position into a 201 percent gain. Jones was also instrumental in the creation of Finex, the financial futures division of the New York Cotton Exchange, and in the development of the U.S. dollar index futures contract. A founder of the Robin Hood Foundation, he is widely known for his philanthropy.



Citadel Investment Group

A self-styled quant who lacks the advanced math and science background of, say, Renaissance Technologies Corp.'s James Simons, Ken Griffin nonetheless built a convertible arbitrage pricing model while attending Harvard College, where he ran two small investment partnerships from his dorm room. Today his Chicago-based Citadel Investment Group manages $8.5 billion and trades in about 15 different strategies. Griffin's two biggest funds -- Wellington Partners and Kensington Global Strategies -- were up in the midteens last year thanks to strong gains in most of his strategies, especially his relative value investments. At year-end his equity-oriented portfolio was diversified among 1,448 individual issues, including stocks and convertible bonds. Citadel's largest stock position by far, nearly $240 million, was in Comcast Corp. The firm also had big stakes in Pharmacia Corp., Dreyer's Grand Ice Cream, Halliburton and General Electric Co. Its largest convertible bond position, about $234 million, was in paper issued by PG&E Corp. Citadel also had a sizable option portfolio. Formerly one of Chicago's most eligible bachelors, Griffin, 34, recently got engaged. He is keeping business and pleasure in close proximity: His fiancée, Ann Dias, recently ran her own hedge fund out of Tiger Management Corp.'s office in New York. And he is actively giving back to his local community. Griffin last year joined the board of directors of the Chicago Public Education fund, where he will help track the performance of investments and provide counsel to the fund's portfolio of program management teams.



Duquesne Capital Management

When he tendered his resignation as George Soros' chief investment strategist in late 2000, Stanley Druckenmiller said that he needed a break after having failed to get out of the market before the bubble burst. "I overplayed my hand," he told a reporter at the time. "I blew it." But after a family vacation in Africa, Druckenmiller, 50, was back at work, as hard as ever, at Duquesne Capital Management, a Pittsburgh- and New York City­based investment firm he began with $1 million in 1981 and ran even while working for Soros. The macro specialist now runs about $5 billion, perhaps $1 billion of it his own money. One of his investment vehicles, No Margin, rose 11 percent last year, net of fees. One of Druckenmiller's happy clients is Bowdoin College in Maine, from which he graduated magna cum laude in 1975, majoring in economics and English. Last year Druckenmiller likely benefited from shorting the global equity markets while interest rates declined and the euro surged against the dollar. According to a year-end filing with the Securities and Exchange Commission, he had nearly $2.2 billion in a variety of equity instruments, including put options on Agilent Technologies, EBay, Lowe's Cos., Marsh & McLennan Cos., Microsoft Corp., Starbucks Corp. and Tyco International. He had calls on Dell Computer Corp., J.P. Morgan Chase & Co., Northrop Grumman Corp., Wal-Mart Stores and Yahoo! as well as on EBay, Lowe's and Microsoft (there's hedging for you). Druckenmiller also owned a raft of convertibles, including two issued by Tyco, making that his biggest investment overall. Stockholdings included Banc One Corp., Bristol-Myers Squibb Co., Comcast Corp., Fox Entertainment Group and Genzyme Corp.



SAC Capital Advisors

Steven Cohen has tried to keep a low profile since he closed his funds to new investors and began returning capital to several investors, including funds of funds, a few years back. But last summer Cohen, who is renowned for his rapid-fire trading strategy and his astounding 50 percent performance fee on his flagship fund, received an unwanted burst of publicity. His Stamford, Connecticut­based SAC Capital Advisors received a so-called Wells notice indicating that the Securities and Exchange Commission was investigating possible insider trading violations by one trader at the fund. According to published reports, the SEC was looking into whether Michael Zimmerman, one of Cohen's portfolio managers, had traded ahead of recommendations issued by now­ Lehman Brothers research analyst Holly Becker, then his fiancée. (They married in August 2000.) The reports say that SEC enforcement officials planned to recommend that the agency file a lawsuit against Becker and Zimmerman, alleging that they traded on insider information on the stock of Avon Products, and EBay while Zimmerman worked at hedge fund Omega Advisors in 1999, but no action was recommended on Zimmerman's trades while at SAC. Cohen, 47, who tends to embrace virtually every trading strategy, did especially well last year in statistical arbitrage, international equities, currencies, convertible arbitrage, hedged corporate bond strategies and even macro investing. Overall, Cohen, who manages about $3.8 billion, was up about 13 percent, net of fees.



Andor Capital Management

Who says you can't make money in technology stocks? Just ask Daniel Benton and his gang at Andor Capital Management in Stamford, Connecticut. For the second year running, they racked up huge gains shorting the kinds of stocks that made millions of people paper-rich during the late 1990s. The $2.6 billion Andor Technology Offshore Fund rose by 10.3 percent, while the $800 million Andor Diversified Growth Offshore Fund surged by 31.4 percent and the $700 million Andor Technology Aggressive Offshore Fund jumped 20.5 percent. Andor's year-end 13F filing, which doesn't flag shorts, showed just $803 million invested in 43 stocks. The money manager's largest holdings by far were EBay and KLA-Tencor Corp. Benton's best investment decision may have come in 2001 when he broke away from Pequot Capital Management, where he ran tech funds and which has been mostly in the red since then. A graduate of Colgate University, the 44-year-old recently issued a $1 million challenge to secure gifts, of any level, from 52 percent of alumni by May 31, 2003, the close of the school's fiscal year.



Millennium International Management

Millennium International Management's Israel Englander, 54, burst into the limelight last year when his investment affiliate, Millenco, launched a successful proxy fight against MVC Capital -- formerly MEVC Draper Fisher Jurvetson Fund -- a publicly traded information technology venture capital fund. Millenco challenged two elections for the board of directors, alleging proxy fraud and deception. The investment group charged that two candidates were incorrectly identified as independent directors in the company's proxy. A judge ruled in Millenco's favor and threw out the last two director elections. Millenco and its affiliates' seven nominees then went on to win seats on the board by a margin of roughly four and a half to one at the recent annual meeting. Last year Englander's two multistrategy funds -- Millennium International and Millennium U.S.A. -- rose 9.6 percent, net of their 20 percent performance fees. The $4 billion fund operation benefited from most of its strategies, except options and merger arbitrage. Last year New York City­based Millennium lured the health care team, including portfolio managers Edmund Debler and Steve Lisi, from Steven Cohen's SAC Capital Advisors. When he's not investing, Englander sits on the board of directors of the Metropolitan New York Coordinating Council on Jewish Poverty, which provides services for the city's Jewish poor.



Water Street Capital

A buyer of stocks since age ten -- he rode the bus to his broker on days off from school -- Gilchrist Berg tried to short his first stock, Microelectronics, at the ripe old age of 14, after reading Bernard Baruch's My Own Story. But his broker turned Berg down because he didn't have a margin account, and his father refused to co-sign to open one. Not easily discouraged, Berg pursued a career in money management and today runs Jacksonville, Florida­based Water Street Capital. He may be the best-kept secret -- and arguably the best short-seller -- in the hedge fund business. Last year the Polar Fund, the firm's short-only partnership, finished up 36.8 percent, net of fees; Water Street Partners jumped 24 percent net. Polar has risen by about 40 percent annually, net of fees, for the past three years and has outperformed the S&P 500 on a net basis for 15 years running. Berg, according to those who know him, likes to short questionable business models run by questionable people. Last year he was short technology and telecommunications stocks. He also bet against Tyco International, which he had initially shorted in the late 1990s after it bought U.S. Surgical, a company he had been betting against for a number of years. When Tyco announced plans to split up into several parts in 2002, Berg upped his wager. Other successful 2002 shorts: AmeriCredit Corp., Elan Corp. and Metris Cos. His best longs last year were Sealed Air Corp. and longtime holdings in tobacco and Berkshire Hathaway. The Princeton University graduate, now 52, launched Water Street after spending nine years at Kidder, Peabody & Co. running a research boutique, calling on heavyweight hedge fund managers like Julian Robertson, Michael Steinhardt and Robert Wilson. Robertson's Tiger Management Corp. became Berg's first limited partner. In 1992 he demonstrated his gratitude by creating the Julian H. Robertson Jr. Scholarship at the University of North Carolina at Chapel Hill, awarded to an incoming freshman who demonstrates academic accomplishment and sterling character.



Lone Pine Capital

This is why it's called hedging: Last year Stephen Mandel Jr. suffered the first down year on his long portfolio since he left Tiger Management Corp. to launch Greenwich, Connecticut­based Lone Pine Capital in 1998. However, his diversified portfolio of 200 shorts helped drive the overall portfolio to an 18.4 percent return (gross). Over the past few years, Mandel has been taking an increasingly concentrated position in his favorite stocks. He had $4.7 billion invested in 76 issues at the end of 2002. A year earlier the 47-year-old owned three more issues but had invested nearly $2 billion less money in shares. Mandel's top holdings at year-end included Apollo Group, Cardinal Health, Career Education Corp., CarMax, Expedia, Fannie Mae, Kinder Morgan and UnitedHealth Group. Altogether Mandel had $5 billion under management at year-end. In recent months he has been tinkering with his firm's structure. Reportedly, his is one of a handful of large, high-profile hedge funds to be giving back a sizable sum of capital to investors. Mandel also reportedly has instituted a 10 percent performance fee when he is below his high-water mark, so that he can retain key analysts. So far he is not in danger of invoking this new policy.



Graham Capital Management

Kenneth Tropin has had the knack for making big bucks in both up and down markets since he launched Graham Capital Management back in 1995 in Stamford, Connecticut. Last year his Graham Global Investment Fund: K4 Portfolio soared 43.7 percent after climbing more than 39 percent the previous year, while his Graham Selective Trading program rose 28.4 percent and the Proprietary Matrix program also finished up more than 28 percent. Today Tropin, 49, who generally charges a 3 percent management fee and 20 percent of profits, runs more than $3.5 billion, including $2.3 billion in trend-following programs he designed.



Blue Ridge Capital

Like most top hedge fund managers, former Tiger Management Corp. cub John Griffin of Blue Ridge Capital in New York City works hard to keep his portfolio secret. But Griffin, 39, is not shy about sharing his expertise. He teaches classes at Columbia University and via teleconference at his alma mater, the University of Virginia. At Columbia several of his analysts lead the instruction. In a 1999 speech at the University of Virginia, Griffin offered tips for investors -- lessons many Julian Robertson disciples deploy. His advice: Find out what others do not know. Short companies with bad business models. Don't short stocks just because you wouldn't buy them. Keep small positions in shorts to avoid losing too much money. Also, watch for companies that brag about upcoming international expansion when the company is not doing well. Simple stuff, but it appears to work: Last year Blue Ridge's $1.6 billion fund rose 14 percent, net of fees. Griffin, who started the Blue Ridge Foundation to aid children and families in impoverished communities, is a board member of the Michael J. Fox Foundation for Parkinson's Research and a sponsor and mentor in the Student Sponsorship Program of New York.



Cannell Capital

Whether swimming in the waters of San Francisco Bay, leading hikers up Mount Princeton in Colorado or sleuthing for "neglected companies with imperfect information dissemination," J. Carlo Cannell, 39, likes to say he travels where few dare to go. The approach has served him well. He founded Cannell Capital in 1992 with $600,000; assets under management swelled to $950 million in 2002, before he returned $200 million to investors. Last year his two hedge funds -- Anegada and Tonga Partners -- finished up in the mid­20 percent range. Among his winners on the long side: Boston Communications Group, Hyperion Solutions Corp. and Sports Authority. His big short-side gains came from AstroPower, Edison Schools and Nyfix. Cannell says he uses a proprietary research methodology to screen a universe of 7,000 companies for specific attributes that have correlated with alpha over time. This process yields a list of 300 or so companies, which his analysts then concentrate on. Cannell frequently looks for some outside catalyst that would suddenly boost a company's stock price, but he is not shy about shorting stocks. "A hedge fund without a hedge is a boat without a keel," he likes to say. Cannell recently launched a new line of funds called the Yasawa funds, which specialize in long-short Japan equity. The youngest grandson of Ferdinand Eberstadt, founder of F. Eberstadt & Co., Cannell graduated from Princeton University in 1985. He also took classes at Oxford University's graduate school of business. When he isn't shorting stocks, Cannell likes grueling swims. A member of the Dolphin Swimming and Boating Club of San Francisco, he participates each year in the club's annual "Escape from Alcatraz" triathlon, which includes a 1.5-mile swim from Alcatraz to Aquatic Park.



Clinton Group

Talk about explosive growth. In the past three years, George Hall transformed New York City­based Clinton Group from a good-size hedge fund operation with $1.1 billion under management to a large multimarket arbitrage business running $5.3 billion. And that doesn't include an additional $4.1 billion in collateralized bond obligations that his firm manages. Performance has played a big role in the growth of this fixed-income specialist. Last year Hall's worst-performing large fund -- the Clinton Arbitrage Fund -- rose more than 6 percent, while his best performer, the Clinton Global Investment Fund, surged nearly 18 percent. His largest fund, the $1.6 billion Clinton Multistrategy, finished the year up more than 11 percent, while the $1.3 billion Trinity Fund climbed more than 8 percent. A member of the board of trustees of the New York University School of Medicine Foundation, Hall, 42, is a major benefactor of the Cochlear Implant Program and the Head and Neck Cancer Research Program at the NYU School of Medicine. In January 2002 this graduate of the U.S. Merchant Marine Academy established the George E. Hall Childhood Diabetes Foundation, after his eldest niece was diagnosed with juvenile diabetes at the age of 6.



Tewksbury Capital Management

Investors in Trout Trading Management Co. were smart not to bail out when Matthew Tewksbury bought the Bermuda-based firm from founder Monroe Trout in early 2002 and renamed it Tewksbury Capital Management. In his first year at the helm, Tewksbury, 34, steered the $3.3 billion commodity and macro trading specialist to an 11.9 percent gain, net of the 4 percent management fee and 22 percent performance fee. Sure that was less than the 13.6 percent gain Trout had racked up in his final year and about half of Trout's 21.5 percent annualized return over his 14-year tenure. But in his rookie year, Tewksbury outpaced most hedge funds. Like trading legend Trout before him, Tewksbury employs sophisticated computer technology to develop and execute statistical trading strategies, operating 24 hours a day, Sunday night through Friday night. He joined Trout Trading in 1992 to run the then­newly established Outside Traders Investment Program after receiving his BA in economics from the College of William & Mary the previous year. In 1996 he became executive vice president, and in 1999 he was appointed chief executive officer and deputy chairman, responsible for overseeing day-to-day operations.



Highbridge Capital Management

Glenn Dubin and Henry Swieca, co-founders and managing members of Highbridge Capital Management and co-chairmen of Dubin & Swieca Capital Management, run $5 billion­plus, including more than $4 billion in Highbridge Capital Corp., an offshore fund that employs multiple strategies, including global convertible arbitrage, event-driven investments, structured investments, distressed/special opportunities and statistical arbitrage. Last year the fund finished up about 8 percent, its first single-digit return since 1998. All of its strategies performed similarly, with no one strategy doing especially well or poorly last year. In general, Highbridge benefited from market volatility, going long convertibles and short the underlying equities. At the end of the year, it cashed in on the rally in the credit markets as spreads narrowed, a trend that persisted well into 2003. Dubin, 46, a founding board member of the Robin Hood Foundation, last year resigned from the board of directors of Max Re Capital, a Bermuda-based reinsurer that was co-founded by Moore Capital Management's Louis Bacon. Dubin had served on the board since 1999. Before forming Dubin & Swieca, Dubin was a senior vice president at E.F. Hutton & Co., where he met Swieca. The pair joined Shearson Lehman Brothers in 1986. Swieca, 46, started his career at Merrill Lynch & Co. in 1979 before earning his MBA in investment management at Columbia Business School.



Farallon Capital Management

Last year Thomas Steyer, managing member of San Francisco­based Farallon Capital Management, clearly benefited from the power of hedge fund math, as he saw his funds climb just 5.7 percent -- but on more than $8 billion in assets. The 45-year-old specializes in distressed securities and so-called event-driven situations. As of year-end, according to government filings, Farallon's biggest bet was a $425 million position in Pharmacia Corp., which was bought by Pfizer in April 2003. The fund's second-biggest position was a $188.7 million stake in 5 percent notes issued by COR Therapeutics, which had merged with Millennium Pharmaceuticals earlier in the year. In April 2003 investors were able to sell the notes to Millennium for $1,085 in cash for every $1,000 in principal. Steyer is a managing director of Hellman & Friedman, a San Francisco­based private equity firm that helped found Farallon in 1986. Before that he worked for Goldman, Sachs & Co., where he was responsible for a substantial number of the merger arbitrage department's investments, including all international arbitrage. Steyer holds an MBA from Stanford University's Graduate School of Business, where he was an Arjay Miller Scholar, and graduated summa cum laude in economics and political science from Yale University, where he was elected to Phi Beta Kappa. He now manages about $3 billion of Yale's endowment. Boola, boola.



Cerberus Capital Management

There is no shortage of investment opportunities for Stephen Feinberg these days. The 43-year-old runs more than $5.6 billion, focused on the relatively obscure and illiquid world of distressed debt and on other securities of financially challenged companies. In 2002 virtually all of New York City­based Cerberus Capital Management's eight hedge funds -- Cerberus Partners, Long Horizons Fund, Styx Partners and Blackacre Capital Partners and their offshore counterparts -- mostly saw gains in the single-digit range, net of fees. Because many of his investments don't trade often and valuing his securities can be dicey, the conservative Feinberg voluntarily subjects his company to two independent audits each year. A Princeton University graduate and a Drexel Burnham Lambert alumnus, Feinberg is typically well diversified, avoids junior credits and frequently holds positions for as long as two years. Equities are a very small part of what he does; he had only about $108 million invested in 23 issues at year-end. He recently agreed to buy Softbank Corp.'s 49 percent stake in Japan's Aozora Bank. Feinberg also has about $2.9 billion committed to funds structured and run more like private equity funds, and managed accounts that participate in similar investment programs.



John W. Henry & Co.

If only John Henry's success as an investor could rub off on the Boston Red Sox, the baseball team he bought last year. The 53-year-old, who runs $1.3 billion in 11 managed-futures programs, racked up some of the flashiest returns among alternative investors last year, when all of his programs outperformed the major global equity and bond indexes. Leading the way: his $255 million Financial & Metals Portfolio, which was up more than 45 percent, and the $691 million Strategic Allocation Fund -- his largest program -- which rose more than 31 percent. The firm cashed in on the downward move in the dollar while registering strong gains from the global bond markets. It generated smaller gains from plays in metals, crude oil and many of the traditional grain markets. "The volatility and spikes in price during the year did not lead to the high level of returns as one would have expected from looking at the percentage price move for the year," the firm told investors in its annual report. Henry would have earned more if he hadn't had to meet high-water marks for those of his funds that were down in 2001 as well as for some individual customer accounts. He led an investor group that shelled out $700 million for the Red Sox: Henry also wound up with a regional cable operation, the New England Sports Network, and real estate, including Boston's Fenway Park. From January 1999 until February 2002, Henry owned the Florida Marlins baseball team, which he sold for $158.5 million.



Tudor Investment Corp.

James Pallotta, who runs U.S. equities for Tudor Investment Corp., has plodded through three mediocre years. In 2002 his $3 billion Raptor Global Funds (domestic and offshore) finished up 6.12 percent, bouncing back from 2001's nearly 3 percent decline. But weep not for this brilliant strategist, who guided the fund to a 91 percent gain in 1999: He and other Tudor senior partners managed to rack up strong gains on their own capital. A Boston native, Pallotta, 45, maintains offices in that city's posh Rowes Wharf section, far removed from Tudor's Greenwich, Connecticut, headquarters. A director of the Steppingstone Foundation, which offers programs for "children who are underserved in today's society," Pallotta also contributes to Big Brothers Big Sisters of America; Bridge Over Troubled Waters, which provides counseling, health care and education to runaways, homeless youth and other adolescents; the Cam Neely Foundation for Cancer Care, created by the popular former Boston Bruins hockey star; and the Michael J. Fox Foundation for Parkinson's Research.



Perry Corp.

Low-profile at home in the U.S., Richard Perry, 48, sure stirred things up halfway around the world. Earlier this year a high court judge in New Zealand ruled that Perry Corp. had breached local shareholder rules by failing to give notice of its holdings in Rubicon -- a forestry and biotechnology company spun off in the breakup of the Fletcher Challenge empire -- between May 2001 and June 2002. The judge ordered Perry's firm, which manages $5.2 billion, to forfeit 12 million shares of Rubicon worth about $9 million and to sell an additional 24 million shares on the open market within 180 days of the ruling, which concluded that Perry had entered into an equity swap arrangement with Deutsche Bank and UBS Warburg to avoid disclosure as a substantial security holder in Rubicon. Perry's setback was a major victory for Guinness Peat Group, which is trying to secure a controlling interest in Rubicon. Perry is currently appealing the ruling. Perry Partners and its offshore equivalent recorded single-digit gains in 2002. European funds gained nearly 14 percent.



AQR Capital Management

When the New York Rangers played for the Stanley Cup in the last game of the finals in 1994, rabid fan Clifford Asness balked at the exorbitant price of a ticket that a friend was able to scalp. He settled for watching the game on TV. Pretty soon he may be able to buy the team. Last year Asness, 36, a quantitative specialist and managing principal of AQR Capital Management, saw his two largest multistrategy funds climb by about 19 percent, net of fees. (AQR charges a 1.5 or 2 percent management fee, depending on the fund, and a 20 percent performance fee.) The New York City­based company runs $3.1 billion utilizing 14 strategies, including global macro, fixed-income arbitrage and market-neutral equity. Just about all fared well last year, but none scored a hat trick -- which is just fine with Asness, who aims for 15 to 20 percent annualized returns with little correlation to the equity markets. Asness, who previously ran the quantitative research department at Goldman Sachs Asset Management, started AQR with three lieutenants -- David Kabiller, Robert Krail and John Liew -- in January 1998. In 2000 he was given a Graham and Dodd Award of Excellence from the Association for Investment Management and Research. He received BS degrees from the Wharton School and from the Moore School of Electrical Engineering at the University of Pennsylvania and has an MBA and a Ph.D. in financial economics from the University of Chicago Graduate School of Business.



Brummer & Partners Kapitalförvaltning

A relative newcomer to hedge funds, Patrik Brummer, 54, founder of Stockholm, Sweden­based Brummer & Partners Kapitalförvaltning, has been around the investment business for decades. He joined stockbrokers Alfred Berg Fondkommission in 1973, rising to CEO of the Alfred Berg Group before it was acquired by ABN Amro in 1995, the year he launched his fund. Today Brummer runs about $3.1 billion, mostly in two funds. The biggest is the $1.75 billion Zenit, which finished 2002 up 19 percent and has surged a cumulative 625 percent in its seven-year history. It is a stock-oriented fund that relies heavily on shorts and futures for risk control. Brummer and company kick off the investment process by attempting to identify overall themes to play. In 2002 about one third of the fund's gains came from shorting the semiconductor industry. Zenit had profitable positions in the communications equipment and capital goods industries and made a handsome gain on a large put option on the Standard & Poor's 500 index. The $791 million market-neutral Nektar fund finished up 26.3 percent last year. Nektar strives to establish a risk level that is lower than that of the stock market.



Tontine Partners

Who said you couldn't make money going long in the stock market last year? Certainly not Jeffrey Gendell of Tontine Partners. Last year Tontine Financial Partners, his biggest hedge fund, surged about 33 percent (it rose 42 percent in 2001), thanks to a simple strategy: investing in puny thrifts. Gendell, 43, has spent the past decade quietly cashing in on the consolidation of the thrift industry, frequently buying up the stocks of institutions with market caps of less than $50 million. When these companies aren't being taken over, they are buying back their own stock, which also gives Gendell's portfolio a boost. Not that he ignores the giant financial companies. At year-end Tontine's biggest positions were in Washington Mutual and Citigroup. Of his top 15 holdings, the only nonfinancial stocks in all of his funds were homebuilders -- Centex Corp., KB Home, Pulte Homes and Ryland Group. Late last year Gendell traded his midtown Manhattan office for one in relatively quiet Greenwich, Connecticut, not far from his home.

Whatever happened to . . . ?

Sometimes the rich don't get that much richer. Several of the best-paid hedge fund managers from last year fell off our current roster. Below we tell you who, why and how much they made in 2001.

George SorosSoros Fund Management

($700 million)
Soros' Quantum Endowment Fund fell 1.72 percent. Exit president Robert Bishop.

Edward LampertESL Investments

($445 million)

ESL dropped 15 percent after a bad bet on Kmart Corp.

David TepperAppaloosa Management

($225 million)

Tepper's Appaloosa Investment LP I and Palomino Fund fell about 25 percent thanks to a huge sell-off in junk and distressed securities.

Louis BaconMoore Capital Management

($110 million)

Bacon's biggest fund, the $2.2 billion Moore Global Investments, dropped 4.1 percent, offsetting the 7.25 percent net gain of the Moore Global Fixed Income Fund.

Monroe TroutTrout Trading Management Co.

($100 million)

Trout sold his firm to Matthew Tewksbury (see page 42) and retired.

Robert KarrJoho Capital

($90 million)

Karr's $1.6 billion Japan-focused fund rose just 5.2 percent net of fees.

O. Andreas HalvorsenViking Capital

($60 million)

The $3.3 billion long-short fund's 5.3 percent gain wasn't enough.

Andrew MidlerStandard Pacific Capital

($44 million)

Standard Pacific's funds rose about 1 percent.

Lee Ainslie IIIMaverick Capital

($38 million)

Maverick's long-short equity funds ended 2002 up net 2.5 percent.

Daniel OchOch-Ziff Capital Management Group

($30 million)

Och-Ziff's biggest fund, the $5 billion OZ Master Fund, lost 1.58 percent.

Ahmet OkumusOkumus Capital

($25 million)

Okumus's funds' performance in 2002 was in the low single digits.

Dwight AndersonTudor Investment Corp.

($20 million)

His Ospraie funds rose about 15 percent -- not enough to qualify for this year's $30 million cutoff.

Steven ShapiroIntrepid Capital Management

($20 million)

Intrepid rose 3.6 percent last year.