Hedge funds are pooled investments that use a variety of investment strategies to generate big profits for their investors. A hedge fund manager dictates what to buy and sell, and assets held in the fund can include stocks, bonds, derivatives, commodities, currencies, or all of the above. A fund might be long or short only, or use a combination of long and short strategies.
Hedge funds typically charge higher fees than traditional mutual funds or exchange traded funds, and the justification for the higher fees is that hedge funds can sometimes deliver investors robust returns, even in down markets. Managers of the largest funds can earn millions of dollars per year and, in some cases, even billions.
More than 15,000 hedge funds operate worldwide with roughly $3 trillion in combined assets under management (AUM), according to ADV Ratings. North America is home to 70% of the world's funds, with half in New York, California, and Texas. Here are the five biggest hedge funds in 2020 as per ADV Ratings.
- Hedge funds use a variety of long and short strategies across a number of different financial markets.
- These funds charge higher fees than mutual funds and ETFs because of the potential for higher returns.
- Managers are paid a percentage of the fund's profits with compensation reaching millions—or even billions—per year.
- Bridgewater Associates, Renaissance Technologies, and AQR are among the biggest hedge funds in the U.S.
Bridgewater, the Connecticut-based fund of Ray Dalio, remains the largest fund in the world in terms of assets. Founded in 1975, it now has $160 billion in assets under management for the entire company as of February 2020. Some of Bridgewater's clients include institutional investors, charitable foundations, university endowments, and pension funds. The company employs roughly 1,700 people.
Dalio proves that the largest funds can still be highly profitable. According to Forbes, his net worth is estimated to be $18.7 billion as of March 2020. So it should come as no surprise that the hedge fund manager raked in over $1 billion in compensation in 2018.
James Simons, the co-founder of Renaissance Technologies, propelled his fund to the second spot on the list. Renaissance is one of the oldest and most popular quantitative firms, and its strategy has paid off significantly. The firm is headquartered in New York and has roughly $68 billion in AUM. It serves corporations, trusts, individual investors, and financial institutions.
Renaissance is currently run by Peter Brown while Simons remains a board member. He had the most earnings of any hedge fund manager in 2018 after making $1.6 billion. Simons had a net worth of $21.6 billion as of March 2020, according to Forbes.
Because they require a higher minimum investment, hedge funds attract high-net-worth individuals.
Headquartered in London, Man Group is the third-largest hedge fund operator with more than $62 billion of assets under management. It provides a range of funds to institutional and private investors. The company has offices around the world including Hong Kong, New York, Tokyo, and Sydney.
James Man founded the company in 1783 as a sugar cooperative and brokerage firm. With shares listed on the London Stock Exchange (LSE), it is the largest publicly-traded hedge fund in the world today. Luke Ellis is Man Group's chief executive officer (CEO).
AQR Capital Management
Cliff Asness, the co-founder of AQR Capital Management, has seen his firm's assets grow to more than $61 billion since the firm was founded in 1998. According to AQR, the firm had a total of $185 billion in AUM as of September 2019.
AQR is the largest hedge fund representing the quant fund group and offers a number of different funds for high net worth and individual investors. However, the firm announced that it was cutting up to 10% of its workforce in early 2020 after losing substantial assets in 2019.
Rounding out the top five is Two Sigma, another major player in the quant fund world. Thanks to its innovative technology, Two Sigma secured the fifth spot in this list of largest hedge funds by asset with approximately $43 billion in assets under management. Two Sigma has a workforce of about 1,500 employees who work in offices in New York, the United Kingdom, Hong Kong, and Japan. David Siegel, John Overdeck, and Mark Pickard established the firm in 2001.