Hedge funds are pooled investment products that seek to profit from valuation discrepancies across a wide range of financial assets and markets. Hedge funds are known for complex risk management strategies and operating more sophisticated portfolio management techniques than other types of investment products. The hedge fund industry began to prosper in the 1980s and really took off in the 1990s amid the roaring technology bull market of the era.
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But over time, hedge funds became a crowded and competitive marketplace, and the influx of capital and management talent across the industry lowered returns to a degree. As of 2023, there are reportedly more than 1,000 equity long/short hedge funds alone, and hundreds more found in strategies like credit, quant or macroeconomics-focused approaches.
While hedge fund returns were somewhat lackluster on average through the 2010s (at least compared to index funds), they could be set for an upturn in their fortunes. With the surge in inflation, recession fears and mounting geopolitical upheavals around the world, passive investing strategies could be in for more volatility going forward. That could help improve hedge funds’ relative position in the investing landscape, and particularly so for these top five hedge funds for 2024:
— Bridgewater Associates LP
— Millennium Management LLC
— Renaissance Technologies LLC
— Farallon Capital Management LLC
— Citadel LLC
Bridgewater Associates LP
Bridgewater has been in business since 1975 and has generated one of the most successful track records in the hedge fund industry. Founded by Ray Dalio founded the company and ran it through 2022 before handing over control of the business to the next generation. Some investors have pulled funds out of Bridgewater as this leadership change occurred, and Bridgewater reportedly reduced its headcount by about 100 people during this transition period. Regardless, Bridgewater remains a dominant player in the industry, with $112.5 billion in assets under management as of Dec. 31, 2023.
The firm still retains an enviable list of leading clients, including large pensions, university endowments, family offices and even central banks. It remains to be seen how the fund’s capital allocation strategies will pivot to adjust to new leadership and market opportunities. That said, Ray Dalio’s core framework around “risk parity” and developing “all weather” strategies should continue to guide Bridgewater’s moves going forward.
Millennium Management LLC
New York hedge fund Millennium Management is one of the world’s largest funds, with a reported $67.9 billion in assets under management as of August 2024. Izzy Englander founded the fund back in 1989 and retains 100% ownership of the company today. Like with Bridgewater’s leadership transition, there is some uncertainty as to how Millennium will move forward, particularly as top executive Bobby Jain left Millennium, removing him from the potential successor pool.
In any case, many Millennium investors are thrilled that Englander remains on the job. Since its founding, Englander has grown Millennium from $35 million in assets in 1989 to more than $60 billion today while racking up an average annualized return of about 14% per year. Impressively, the firm has only had one down year, which was a mere 3% decline in 2008 during the financial crisis.
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Renaissance Technologies LLC
James Simons founded Renaissance Technologies in 1982 and would go on to launch the firm’s flagship Medallion Fund in 1988. Simons was an MIT-educated mathematician and employed cutting-edge data analysis and pattern recognition systems to find numerous edges within the financial markets. While quantitative trading is a popular field nowadays, Simons was one of the first to tap into that market opportunity, allowing Renaissance to generate truly astonishing returns.
The fund reportedly grew at a compound annual growth rate of 62% between 1988 and 2021; even after accounting for fund management fees, investors still received 37% annualized returns over that stretch. Needless to say, these returns are far in excess of broad stock market index funds or almost any other mutual fund or hedge fund over the years. Unfortunately, it’s now impossible to invest in Medallion, as the fund is closed to outsiders.
Farallon Capital Management LLC
With about $40 billion in assets under management, San Francisco-based Farallon is one of the largest hedge funds on the West Coast. Farallon was founded in 1987 by billionaire financier, philanthropist and environmental activist Tom Steyer. Steyer also ran for president as a Democrat in the 2020 primary but he dropped out after failing to catch on with voters.
While Steyer’s political ambitions didn’t quite work out, his business strategy was highly successful. Farallon was an early advisor and manager of funds for Yale University. Yale made a windfall from its investments with Farallon, paving the way for many leading universities and public institutions to invest their pensions and endowments in hedge funds. Farallon markets itself as an absolute returns investing shop, meaning that it will put money into a great number of different markets where it finds relative risk-adjusted returns to be the most attractive. Unlike many hedge funds, Farallon does not consider itself to be a short-term trading shop, and it is known for having a higher average length of ownership in its investment portfolio.
Citadel LLC
Billionaire Ken Griffin cuts a distinctive figure as the founder of Citadel and Citadel Securities. He is known for his bold market calls and controversial takes, such as his recent statements that artificial intelligence optimism is overblown and that AI largely won’t be replacing high-level employees in the near future. Citadel’s approach includes equities, fixed income and macro, commodities, credit and convertibles, and global quantitative strategies. Griffin hires employees from all walks of life, seeking employees who have professional accomplishments in fields other than finance to provide better balance and diversity at Citadel. These strategies are still working well for the company; Citadel had reportedly generated 8.1% year-to-date returns through June 2024, putting it comfortably ahead of the average hedge fund peer over the same period.
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5 of the Top Hedge Funds in 2024 originally appeared on usnews.com
Update 08/22/24: This story was previously published at an earlier date and has been updated with new information.
