Hedge funds are alternative investments that use a variety of methods such as leveraged derivatives, short-selling, and other speculative strategies to earn a return that outperforms the broader market. Hedge funds invest in domestic and international markets alike. They typically impose $1 million minimums and target high-net-worth individuals, pension funds, and institutional investors.
As a result, hedge funds invariably carry higher risk than traditional investments. They are not subject to the same regulations as mutual funds and may not be required to file reports with the U.S. Securities and Exchange Commission (SEC).
The World’s Top 10 Hedge Fund Firms
BlackRock (BLK) is a New York-based investment manager that manages trillions in assets. The largest BlackRock entity, BlackRock Fund Advisors, has been in operation since 1984 and oversees $1.9 trillion in assets.
BlackRock Financial Management was founded in 1994 and oversees $2.25 trillion. BlackRock Advisors, its internal hedge fund, started in 1994 and now handles $789.57 billion.
AQR Capital Management
AQR Capital Management is based in Greenwich, Conn., and uses quantitative analysis to develop financial models focused on value and momentum investing. ACR implements its strategies via mutual funds, a type of mutual offered in Europe known as Undertakings for Collective Investment in Transferable Securities, and sponsored funds and managed accounts.
As of March 31, 2020, AQR had $164billion under management. It also earned advisory feeds on another $224.8 billion in assets.
Cliff Asness founded the company along with partners John Liew, Robert Krail, and David Kabiller. The four had worked together on a hedge fund at Goldman Sachs. AQR launched its Absolute Return fund in August 1998, the same month Long Term Capital Management imploded.
Bridgewater Associates is based in Westport, Conn., and provides services to pension funds, foreign governments, central banks, university endowments, charitable foundations, and other institutional investors. Co-chair and co-chief investment officer Ray Dalio founded the firm in 1975 from his two-bedroom New York apartment.
The company offers four main funds:
- Pure Alpha, which focuses on active investment strategy
- Pure Alpha Major Markets, which targets a subset of opportunities that the Pure Alpha fund invests in
- All Weather, which uses an asset allocation strategy
- Optimal Portfolio, which combines aspects of the All Weather fund with active management
As of March 27, 2021, the fund had $154 billion under management.
Renaissance Technologies is a New York-based quantitative hedge fund that uses mathematical and statistical methods to uncover technical indicators that drive its automated trading strategies. Renaissance applies these strategies to U.S. and international equities, debt instruments, futures contracts, forward contracts and foreign exchange.
As of June 3, 2021, the fund had $130 billion under management.
Mathematician Jim Simons founded Renaissance Technologies in 1982. Forbes lists Simons as the 68th wealthiest person in the world as of Jan. 13, 2021, worth $23.5 billion. Mathematician Peter Brown is the current chief executive.
This British hedge fund has more than 230 years of trading experience. It started in 1784 as an exclusive supplier of rum to the Royal Navy, later getting into the sugar, coffee and cocoa trading business.
As of December 31, 2020, Man Group had $123.6 billion in assets under management.
Elliot Management describes its investment mandate as "extremely broad" and encompassing of almost every asset type: distressed securities, equities, hedging and arbitrage positions, commodities, real estate-related securities, etc. In August 2019, Elliot acquired book retailer Barnes & Noble. It had earlier acquired British bookseller Waterstones. The company is based in New York and was founded by Paul Singer in 1977.
As of November 13, 2020, Elliot had $73.5 billion in assets under management and $40 billion of net assets under management on a discretionary basis.
Two Sigma Investments
Two Sigma Investments is based in New York and was founded by John Overdeck and David Siegel in April 2002. The company uses quantitative analysis to build mathematical strategies that rely on historical price patterns and other data.
As of March 31, 2021, Two Sigma Investments had $68.9 billion under management.
Millennium Management is based in New York and was founded in 1989. The company offers discretionary advisory services to private funds.
As of December 31, 2019, Millennium had $42 billion under management.
The company is lead by Chair Israel Englander, who founded Millennium with $35 million in capital following a career as a floor broker, trader, and options specialist on the American Stock Exchange.
Davidson Kempner Capital Management
Davidson Kempner Capital Management is based in New York and has affiliate offices in London, Hong Kong and Dublin. The company began managing capital for investors in 1987. It focuses on bankruptcies, convertible arbitrage, merger arbitrage, distressed investments, event-driven equities and restructuring situations.
As of May 31, 2021, Davidson Kempner had approximately $37.3 billion under management.
Citadel Advisors is based in Chicago and focuses on equities, fixed income and macro, commodities, credit and quantitative strategies.
As of March 31, 2021, Citadel had $33.1 billion in assets under management.
In 1987, founder Kenneth Griffin began trading from his dorm room as a 19-year-old sophomore at Harvard University. He founded Citadel in 1990.