The richest hedge fund managers became even richer in 2017.
The 25 highest-earning hedge fund managers last year collectively made the most money in four years —and most of the top earners on Institutional Investor’s 17th annual Rich List are among the wealthiest hedge fund managers, a reminder of the power of compounding.
Altogether, the top 25 earners last year made a total of $15.38 billion, which works out to an average of $615 million. This is an increase of nearly 40 percent from 2016, a year when the top 25 collectively earned the lowest amount since 2005.
Not coincidentally, 2017 saw hedge funds generate their best average performance since 2013.
It took a cool $225 million to earn a spot in the top 25 for 2017. This compares with just $130 million in 2016 and $135 million in 2015.
There are several reasons for these much larger earnings figures at the top. For one thing, the average hedge fund fared better than in the previous few years. In addition, more managers generated better returns than in 2016, when about half either lost money or posted low-single-digit returns.
And many more hedge funds last year — compared with 2016 — were not only profitable but generated respectable-to-spectacular gains, enabling more of the wealthier hedge fund managers to top the list.
Each year II calculates the 25 hedge fund managers who make the most money in a single year. We also highlight a Second Team — those ranking 26 through 50.
We count gains on managers’ own capital invested in their funds, as well as shares of the firms’ total fees. When calculating the gains generated by managers’ own money, we do not take into consideration a high-water mark. In many cases, the gains on their own capital play a major role in the ability of managers to qualify for the ranking.
This year four managers made ten figures — at least $1 billion.
They were led by Renaissance Technologies’ James Simons, who earned $1.7 billion. He has qualified for the ranking all 17 years.
He was followed by Appaloosa Management’s David Tepper ($1.5 billion), Citadel’s Kenneth Griffin ($1.4 billion), and Bridgewater Associates’ Ray Dalio ($1.3 billion).
Millennium Management’s Israel (Izzy) Englander just missed joining this elite class, earning $975 million last year.
To underscore the power of compounding, though Renaissance’s funds all outperformed their historical average and posted double-digit gains, the firms of the four next-highest earners posted gains that fell short of their historical annualized returns. However, the four others have so much wealth tied up in their funds that they still were able to top the Rich List, driven by gains from their own capital.
Dalio’s experience, however, was unique. The manager’s Pure Alpha strategy generated low-single-digit gains last year. This means Dalio did not make the majority of his earnings from gains on his own capital. His funds also did not generate large performance fees.
By contrast, Bridgewater, the world’s largest hedge fund firm, with $108.4 billion, is able to generate a huge pot of management fees.
Altogether, 15 individuals from last year’s top-25 ranking qualified for the Rich List this year, including last year’s 14 highest earners, further demonstrating the power of compounding.
This year just one person makes his debut in the top-25 ranking, at No. 20 — Scott Shleifer, a partner at Chase Coleman III’s Tiger Global Management, who heads up the firm’s public equity business. Last year, Tiger Global’s long-short funds rose 28.2 percent and the long-only funds surged 38.1 percent. As a result, Shleifer, who is also a portfolio manager for the firm’s large venture capital business, made $260 million in 2017.
He and Coleman, who ties for eighth place with $600 million, are among the five of the top 25 who have roots in working for the legendary Julian Robertson Jr. of Tiger Management Corp. The others are Coatue Management’s Philippe Laffont ($550 million), Lone Pine Capital’s Stephen Mandel Jr. ($325 million), and Viking Global Investors’ O. Andreas Halvorsen ($300 million).
Joseph Edelman ($525 million), whose Perceptive Advisors is the smallest among the top 25 firms in terms of assets under management, posted the best performance of the group. His health care– and biotech-oriented fund was up 40.13 percent.
Meanwhile, two managers return to the top-25 ranking after suffering one or two years of losses — York Capital Management’s Jamie Dinan ($350 million) and Glenview Capital Management’s Larry Robbins ($230 million).
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2018: $1.7 billion
2017 Rank: 1 ($1.6 billion)
He’s nothing if not consistent: The legendary James Simons remains the only person to qualify for the Rich List all 17 years — ranking among the top five for the past 16 — and in year 17 he tops the list once again.
This past year the three Renaissance Technologies computer-driven hedge funds currently available to outside investors posted double-digit gains: Renaissance Institutional Equities Fund (RIEF) rose 14.47 percent, Renaissance Institutional Diversified Alpha Fund (RIDA) rose 11.15 percent, and Renaissance Institutional Diversified Global Equities Fund (RIDGE) climbed 13.29 percent. In 2017, Renaissance — which currently manages $57 billion — allowed employees to increase their stakes in the legendary Medallion fund, which returned all of its outside capital in 2005. The fund has generated 40 percent or so annualized gains since its inception — after a hefty 5 percentage management fee and a 44 percent performance fee.
Although Renaissance has drawn significant attention for former co-CIO Robert Mercer’s strong support of the Republican Party, President Donald Trump, and Breitbart News, Simons is clearly on a different page: At a breakfast hosted by New York’s IESE Business School last fall, Simons said, “I think it’s basically terrible that we have a president remotely like our current president. We’ve had some doozies — but never of that caliber.”
2018: $1.5 billion2017 Rank: 5 ($700 million)
Eclectic investor David Tepper ranks second on the Rich List this year after more than doubling his previous year’s personal earnings. However, his 13 percent gain for the year actually lagged the S&P 500 — marking the fourth straight year Appaloosa came up way short of its historical annualized gain of more than 30 percent.
Tepper’s gains last year were driven by his equity book — especially Micron Technology, Facebook, and Alphabet — and the debt and equity of Caesars Entertainment. At the beginning of this year, Tepper told CNBC he was still bullish on stocks. “Explain to me where this market is rich,” he said in a phone interview with the cable business network. “It’s not rich with the tax thing that just changed earnings projections. With earnings forecasts going up and interest rates where they are, how is this market expensive? I don’t see the overvaluation. World growth is higher.”
Tepper, a minority owner of the Pittsburgh Steelers professional football team, recently won the bidding to purchase football’s Carolina Panthers, for $2.275 billion. Tepper moved his firm’s headquarters from Short Hills, New Jersey, to Miami Beach, Florida, which critics say was done to sharply cut his taxes but Tepper asserts was to be closer to family members. The better winter weather also doesn’t hurt.
2018: $1.4 billion
2017 Rank: 6 ($600 million)
2017 Rank: 6 ($600 million)
Steady as he goes: Last year all of Citadel’s main funds posted results that were almost identical to one another. The flagship Wellington multistrategy fund gained 13.02 percent, Citadel Global Fixed Income Fund rose 13.07 percent — its second straight double-digit gain — and Citadel Global Equities Fund was up 12.76 percent.
It’s not all good news in Chicago, however: Earlier this year, Citadel cut staff at its Aptigon Capital stock trading unit for performance reasons. (In an interview last September at Georgetown University’s McDonough School of Business as part of the Leaders of Global Finance Speakers Series, Griffin said the best people at Citadel win 53 percent of the time and lose 47 percent of the time with their trades. We’re guessing that the departed staff fell into the second category too often.)
Last fall the University of Chicago said its economics department will be renamed for Griffin after he gave $125 million to the institution. The money will be used to hire more professors, expand financial aid, and create a research incubator, to name a few examples. Griffin also gave $15 million to the nonprofit Robin Hood Foundation, a favorite charity of the hedge fund crowd; $16.5 million to Chicago’s Field Museum of Natural History; and $1 million to the Obama library — even though he generally supports Republican candidates.
2018: $1.3 billion
2017 Rank: 2 ($1.4 billion)
Bridgewater Associates founder Ray Dalio ranks fourth among 2017 earners — even though the macro specialist posted anemic gains last year.
Pure Alpha II — also known as Pure Alpha 18 percent — was up just 1.20 percent for the year after surging 3.6 percent in the final three months, and Pure Alpha I — or Pure Alpha 12 percent — gained 1.22 percent after climbing 2.4 percent in the fourth quarter. All Weather, Bridgewater’s risk parity strategy, jumped 13.1 percent.
The Pure Alpha strategy has had an annualized return of 11.9 percent since 1991, and All Weather has had an annualized return of 8 percent since inception in 1996. Dalio was able to make at least $1.3 billion in 2017 thanks to the huge amount of personal capital he invested in the Pure Alpha funds and his share of the fees generated by the world’s largest hedge fund firm, which had $108.4 billion in hedge fund assets at the end of 2017.
Since last year, Dalio has been warning we are past the top in the bond market and are in the “late cycle” part of the short-term debt/business cycle. “We don’t know exactly how far we are from the top in the stock market and then the economy,” Dalio wrote in February on LinkedIn, his favorite forum for communicating publicly. Last September, Dalio published Principles: Life and Work, a 500-page-plus version of his “Principles,” which he published on his firm’s website in 2011. The new version, described by The New York Times as “surprisingly moving,” has been described as part autobiographical, part confessional.
2018: $975 million
2017 Rank: 10 ($410 million)
Izzy Englander's year did not start out well. It finished much better.
In January 2017 star bond manager and possible heir apparent Michael Gelband left Millennium, taking a number of key people to help launch his own hedge fund firm, ExodusPoint Capital Management (it was recently reported that ExodusPoint raised $8 billion). Englander and Gelband wound up in arbitration related to Gelband’s hiring of certain personnel, which concluded around year end.
Yet other than that, the year worked out pretty well. Englander's Millennium USA was up 7.67 percent, slightly better than most other large multistrategy funds. As a result, Englander more than doubled his earnings from 2016 and qualified for the Rich List for the 16th time in its 17-year history.
In 2017, Millennium's quant/statistical arbitrage strategy accounted for 2 percentage points of return, fixed-income for 1 point, and merger arbitrage for 1 point; the firm lost money on commodities.
Englander and his wife, Caryl, give large sums to a wide array of Jewish organizations and yeshivas, as well as to hospitals. The Englander Institute for Precision Medicine at Weill Cornell Medicine uses genetics, genomic sequencing, and clinical data to treat cancer and other diseases. Earlier this year, Caryl paid about $60 million to buy an apartment at 432 Park Avenue, the world's tallest residential tower, according to The Wall Street Journal.
2018: $775 million
2017 Rank: 11 ($365 million)
Sir Christopher Hohn is on a roll.
The Perry Corp. alum, who founded TCI Fund Management in 2003, was one of the top-performing activists last year — as well as an elite stock picker. The heavily concentrated London-based investor posted a 28.3 percent gain — his third consecutive double-digit increase — enabling Hohn to qualify for the Rich List for the fourth straight year.
Last year TCI, which manages about $17.5 billion in hedge fund assets, also finished first overall in Institutional Investor’s Hedge Fund Report Card, improving from No. 2 the previous year. “We take risk,” Hohn said in an interview with II back in November. “We’re not a traditional hedge fund. We are directional, not hedged.”
Most of TCI’s concentrated portfolio of ten to 12 longs made money last year. They were led by investment firm Altaba, the part of Yahoo! not acquired by Verizon Communications; cable and broadband giant CharterCommunications; and Aena, the Spanish airport owner and operator.
It wasn’t all roses, however. Late last year, Hohn failed in his bid to remove Donald Brydon as chairman of the London Stock Exchange Group, although about 20 percent of shareholders opposed Brydon’s election. TCI owns more than 5 percent of LSE shares. In January, Hohn reportedly told investors he expects the CME Group, which owns the Chicago Mercantile Exchange, or Intercontinental Exchange, which owns the New York Stock Exchange, to bid for all or part of the LSE’s business. In April, LSE announced that former Goldman Sachs executive David Schwimmer would be its next CEO.
2018: $625 million
2017 Rank: 12 ($260 million)
On the back of his best returns since 2013, Dan Loeb surges to the seventh spot on the 2018 Rich List.
For 2017, Third Point Offshore gained 18.1 percent and its leveraged sibling, Third Point Ultra, rose 28.8 percent. Both funds’ returns were driven by equities, which accounted for 93 percent of Offshore’s total return. “We believe our strength in this area was partially due to a transition we started in 2009 of shifting our team from generalist analysts to sector or asset class specialists,” the firm told clients in its fourth-quarter letter.
Third Point now has ten industry/asset class teams led by individuals with an average tenure of more than eight years at the hedge fund. The firm said its top-ten winners included three industrials stocks, two consumer issues, two technology investments, two financials holdings, and a health care investment. Third Point’s credit portfolio gained 17.1 percent “despite a rich market,” the letter stated.
Loeb also boosted short-selling efforts over the past two years. Third Point, which was managing $18.6 billion at the beginning of this year, told clients it now has a specialist short-selling team in addition to sector analysts who regularly produce short ideas. In 2017 shorts lost 7 percent — not as bad as it looks given that the S&P 500 was up 21.8 percent.
2018: $600 million
2017 Rank: Did not qualify
For Chase Coleman, what a difference a year makes.
One year after suffering a 15.3 percent loss in his Tiger Global long-short funds, the Tiger Cub/Seed came roaring back, gaining 28.2 percent in 2017. His long-only fund surged 38.1 percent. Of course, it helped that the tech, internet, and media stocks Coleman specializes in all rebounded sharply last year. He generated more than 100 percent of his returns from public and private long positions. Shorts detracted 12 percent from performance at the long-short funds.
In his year-end letter, Coleman said the hit rate on the firm’s long positions was the highest in its 17-year history and that Tiger Global had generated four times as much profit from its three biggest winners as it lost on its three worst performers. The firm, which manages $11 billion in long-short and long-only funds, says five of its top-ten performers were outside the internet, but the internet was its largest exposure and most important contributor last year. Its biggest winners last year were Transdigm, Microsoft, Apollo Global Management, and Booking Holdings.
Coleman, a Long Island native, was seeded by Julian Robertson Jr. of Tiger Management fame after working for him as a technology analyst. Coleman grew up in the same tony north shore Long Island community, Locust Valley, where Robertson lived and was friends with one of his sons, Alex. Coleman, in turn, named a conference room in his office after Robertson.
2018: $600 million
2017 Rank: 9 ($415 million)
David Shaw has not run D.E. Shaw on a day-to-day basis since 2001 — yet 2017 was still a very good year for the hedge fund legend.
To be fair, the firm makes clear that Shaw remains involved in certain higher-level strategic decisions affecting the investment management businesses of the firm he founded in 1988. Last year the firm, which now manages $39 billion in hedge fund assets, posted a 13.68 gain in its Valence Fund, 10.4 percent in its Composite Fund, and a little less than 4 percent in its Oculus Fund. In doing so, the firm continued to draw on computer-driven trading strategies as well as fundamental analysis.
These days Shaw spends most of his time as chief scientist of D.E. Shaw Research leading a research group in the field of computational biochemistry and doing hands-on scientific research. He is also a senior research fellow at the Center for Computational Biology and Bioinformatics at Columbia University and an adjunct professor of biochemistry and molecular biophysics at Columbia’s medical school.
Shaw’s biggest investing miss has nothing to do with the hedge fund: An early D.E. Shaw employee was Jeff Bezos, who headed an online retailing project. When Bezos left to start Amazon, Shaw did not take a stake in the company.
2018: $570 million
2017 Rank: 3 ($750 million)
By Two Sigma standards, 2017 was not a great year. The quantitative firm co-founded by John Overdeck and David Siegel (who ties for No. 10) posted high-single-digit gains in several key funds. But the firm has grown assets at a blistering pace, thanks to a 25 percent surge last year and a 27 percent climb the year before. As a result, it now manages a hefty $52 billion — making it the world’s fourth-largest hedge fund firm.
That big asset growth helped Overdeck and Siegel stay in the Rich List’s top ten in spite of their funds’ single-digit gains. The duo met at pioneering quant firm D.E. Shaw, where Overdeck headed up Japanese equity and equity-linked investments and supervised the firm’s London investment management affiliate.
Overdeck is putting some of his spoils to work for charity. He serves on the boards of the Robin Hood Foundation and the Institute for Advanced Study and is the acting chair of the National Museum of Mathematics. The Overdeck Foundation, founded by John and his wife, Laura, seeks to support the education of children in New York’s inner city. Last year, Overdeck was honored by the Academy of Achievement for being a pioneer in technology and investment management.
2018: $570 million
2017 Rank: 3 ($750 million)
David Siegel, co-founder of quantitative hedge fund firm Two Sigma, has been drawn to computer science ever since he was a child, when he watched movies like 2001: A Space Odyssey. At 12 he was building memory and logic boards while other kids his age were shooting basketballs off of backboards. Siegel even learned to program a supercomputer at New York University’s Courant Institute of Mathematical Sciences. By his freshman year in high school, he was teaching a programming course to high school students in an NYU summer program. The Princeton grad then discovered the field of artificial intelligence while working toward a Ph.D. in computer science at Massachusetts Institute of Technology.
As AI and big data have advanced, so has Siegel’s interest in the technologies. At Bloomberg’s Sooner Than You Think conference in September, Siegel asserted that machine learning is “the story of our times,” calling it “the best way anyone has come up with to algorithmically find knowledge in unstructured data.” He said that though the fields are in their infancy, there are signs that machine learning and AI may already be suppressing wage growth and destroying certain types of skilled jobs as more — and more complex — tasks become automated.
Siegel warns that it could take 20 years for society to deal with the fallout, although he asserts that machine learning and related technologies ultimately will profoundly improve humans’ quality of life.
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