What Are the Biggest U.S. Hedge Funds?
| Top U.S. Hedge Funds | AUM |
|---|---|
| Bridgewater Associates | $124,317,200,000 |
| Renaissance Technologies | $106,026,795,439 |
| AQR Capital Management | $94,523,700,000 |
| Two Sigma | $67,471,220,893 |
| Millennium Management | $57,670,000,000 |
| Citadel | $51,573,787,000 |
| Tiger Global Management | $51,000,000,000 |
| D.E. Shaw | $45,772,700,000 |
| Coatue Management | $42,338,946,229 |
| Davidson Kempner | $40,800,000,000 |
Bridgewater Associates
AUM
$124,317,200,000
Headquarters
Westport, Conn.
Year Founded
1975
$124,317,200,000
Westport, Conn.
1975
Why We Picked It
In 1975, Bridgewater Associates was founded by Ray Dalio in his Manhattan apartment. Today Bridgewater is the largest hedge fund in the world and Dalio has a personal fortune of approximately $19 billion.
The fund serves institutional clients such as pension funds, foreign governments and central banks, as well as charitable foundations, family offices and high net worth individuals.
Strategies include actively invested Pure Alpha and Pure Alpha Major Markets, as well as its All Weather strategy, which focuses on asset allocation, and the related Optimal Portfolio.
As of early 2023, Bridgewater had raised $800 million for its new Defensive Alpha strategy, which is intended to help investors weather bear markets.
Renaissance Technologies
AUM
$106,026,795,439
Headquarters
East Setauket, N.Y.
Year Founded
1982
$106,026,795,439
East Setauket, N.Y.
1982
Why We Picked It
Renaissance Technologies was founded in 1982 by James Simons, a mathematician who worked as a code breaker during the Cold War.
The firm uses mathematical and statistical methods as the basis for its investment strategies. RenTec’s flagship Medallion fund, run primarily for employees, has one of the best track records in the industry.
Portfolios offered to outside investors include the Renaissance Institutional Equities Fund (RIEF) and Renaissance Institutional Diversified Alpha (RIDA).
Of the fund’s 300 employees, 90 hold doctoral degrees in mathematics, physics, computer science, or related fields.
AQR Capital Management
AUM
$94,523,700,000
Headquarters
Greenwich, Conn.
Year Founded
1998
$94,523,700,000
Greenwich, Conn.
1998
Why We Picked It
AQR was founded in 1998 by Cliff Asness, David Kabiller, John Liew and Robert Krail. The firm’s name includes an acronym that stands for applied quantitative research, which is an apt descriptor for its strategy.
Offering its clients more than 40 diversified strategies across equity and alternatives, the firm applies the rigor of academic research to identifying long-term, repeatable sources of return.
AQR was a pioneer in factor investing, and it applies value, momentum, defensive, and carry styles to build portfolios that offer low correlation to traditional equity dominated strategies.
Two Sigma
AUM
$67,471,220,893
Headquarters
New York, N.Y.
Year Founded
2001
$67,471,220,893
New York, N.Y.
2001
Why We Picked It
Two Sigma was founded by John Overdeck, David Siegel and Mark Pickard in 2001. The firm employs research methods inspired by artificial intelligence, machine learning, and distributed computing to support its trading strategies.
Following a disciplined, scientific approach, Two Sigma seeks to consistently generate alpha in liquid global markets across the range of market conditions. The firm has been recognized for generating unusually high returns.
Millennium Management
AUM
$57,670,000,000
Headquarters
New York, NY
Year Founded
1989
$57,670,000,000
New York, NY
1989
Why We Picked It
Founded in 1989, Millennium pursues a diverse array of investment strategies across sectors, asset classes, and geographic regions.
The firm’s four primary strategies include fundamental equity, equity arbitrage, fixed income, and quant, with a variety of sub-strategies within each category.
The investment process is driven by over 200 independent portfolio management teams that pursue opportunities within their areas of expertise.
Citadel
AUM
$51,573,787,000
Headquarters
Miami, FL
Year Founded
1990
$51,573,787,000
Miami, FL
1990
Why We Picked It
Citadel was founded in 1990 by Kenneth Griffin, who continues to serve as the firm’s CEO. With more than 350 investment professionals, Citadel invests in commodities, credit and convertibles, equities, global fixed income and macro, and global quantitative strategies.
One of the most profitable hedge funds of all times, Citadel generated $16 billion in profits for its investors in 2022, and earned $65.9 billion in net gains since 1990, making it the top-earning hedge fund ever.
Tiger Global Management
AUM
$51,000,000,000
Headquarters
New York, NY
Year Founded
2001
$51,000,000,000
New York, NY
2001
Why We Picked It
Tiger Global Management was founded in 2001 by Chase Coleman III as Tiger Technology to invest in the public equity market. Coleman was a protege of Tiger Management’s Julian Robertson, and received $25 million from Robertson to start Tiger Technology.
This hedge fund focuses on public and private companies in the global Internet, software, consumer, and financial technology industries. The public equity business takes a fundamentally oriented, long-term approach to investment and seeks to identify high-quality companies that benefit from powerful secular growth trends and superior management.
D.E. Shaw
AUM
$45,772,700,000
Headquarters
New York, NY
Year Founded
1988
$45,772,700,000
New York, NY
1988
Why We Picked It
D.E. Shaw was founded by David Shaw in 1988, starting out with only six employees. A pioneer in the field of computational finance and quantitative investing, the firm has over 2000 employees today, 80 of whom hold doctoral degrees.
This hedge fund uses strategies based on rigorous analysis and scientific research, and aims to identify market inefficiencies through qualitative, quantitative and advanced computational methods. It invests in a broad array of asset classes spanning public and private markets, emphasizing a collaborative approach to investing.
Coatue Management
AUM
$42,338,946,229
Headquarters
New York, NY
Year Founded
1999
$42,338,946,229
New York, NY
1999
Why We Picked It
Coatue is a technology-focused hedge fund founded by Philippe Laffont in 1999. The firm invests in both public and private markets with its principal focus on the technology, media, and telecommunications sectors, and the healthcare and consumer segments in addition.
Coatue employs more than 50 investment professionals and 24 data scientists and engineers. Their private investment portfolio includes more than 200 technology companies.
Davidson Kempner
AUM
$40,800,000,000
Headquarters
New York, NY
Year Founded
1983
$40,800,000,000
New York, NY
1983
Why We Picked It
Davidson Kempner was founded in 1983 by Marvin Davidson. The firm employs a bottom-up, fundamental approach to investing, with a focus on event-driven and multi-strategy approaches.
Investing globally, Davidson Kempner focuses on risk management and capital preservation, and invests opportunistically in both the public and private markets in a variety of credit and equity strategies as well as in real assets.
*AUM data current as of December 31, 2022, except Davidson Kempner, which effective January 31, 2023.
What Is a Hedge Fund?
A hedge fund is an alternative investment vehicle that pools capital from accredited investors and institutional investors to pursue a variety of investment strategies.
Hedge funds are a bit like mutual funds, since they’re pooled investment vehicles. But that’s where the similarities end. They’re usually organized as private partnerships, with a general partner who’s responsible for making investment decisions.
Hedge funds are designed to achieve high absolute returns, regardless of market conditions, and they can employ a wide variety of risky investment strategies to do so. They invest in any type of asset, provided it’s consistent with their mandate.
How Do Hedge Funds Work?
Hedge funds employ a wide range of investment strategies, and they generally aim to outperform traditional investment vehicles like mutual funds. Strategies can include positions in stocks, bonds, commodities, currencies, derivatives and alternative assets.
The name of this type of fund comes from one of their core investing approaches: Taking both long and short positions in various asset classes that yield profits no matter where broader markets are going—hedging their bets, as it were.
Here’s an example: Interest rates were rising throughout 2022, so a hedge fund might have chosen to go long on defensive stocks in the healthcare sector, and short stocks in the consumer discretionary sector, which were more sensitive to more expensive consumer credit costs.
Hedge funds pursue active portfolio management by default, making tactical shifts based on market conditions in an attempt to widely outperform common benchmarks like the S&P 500.
Funds typically charge a performance fee and a management fee, typified by the “two and 20” approach. The management fee is usually a fixed percentage of the assets under management—2%, for instance.
The performance fee is a percentage of the fund’s profits—typically 20%—providing an incentive for the managers to generate positive returns.
Hedge Funds Are Risky Investments
Access to hedge funds is limited to accredited investors and large institutional clients who understand the risks involved. That’s in part because they are subject to less regulatory oversight than traditional investment vehicles like mutual funds.
While they are well known for their potential to generate higher returns compared to traditional investments, this often comes as a consequence of taking on much more investing risk due to strategic choice, the use of leverage and the inherent volatility of the markets they operate in.
Due to their specialized nature and potential risks, investing in hedge funds often requires a significant amount of capital, expertise, and understanding of the specific fund’s investment strategy.
Individuals considering hedge fund investments should conduct thorough due diligence, carefully assess their risk tolerance, and consider seeking advice from financial professionals who specialize in alternative investments.
How to Invest in Hedge Funds
Since hedge funds pursue absolute returns regardless of market conditions, they can be a very enticing prospect for investors who seek to maximize returns. That puts them out of reach for most regular investors.
There are alternative mutual funds and ETFs available to retail investors that invest in hedge funs. Since these are publicly traded, they are registered with and regulated by the SEC. You can search online and use services like Morningstar to find these alternative products.
While these products may be available to retail investors, don’t be fooled. They’re still highly complex investments and it’s vital to do your research. Investors considering this asset class should consider working with a professional financial advisor. With the right advice and extensive due diligence, alternative investments may offer a benefit to your portfolio.
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As an enthusiast deeply entrenched in the world of finance and investments, I bring forth a wealth of firsthand expertise and a profound understanding of various investment vehicles, including hedge funds. My journey into this domain has been marked by years of intensive study, practical experience, and a voracious appetite for staying abreast of the latest trends and developments in the financial landscape.
The article you've presented delves into the realm of hedge funds, showcasing some of the largest players in the U.S. hedge fund industry. Let's break down the key concepts and terms mentioned in the article:
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Hedge Funds: Alternative investment vehicles that pool capital from accredited and institutional investors to pursue various investment strategies aimed at achieving high absolute returns.
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Absolute Returns: Refers to the return on investment independent of market movements, unlike relative returns which are measured against a benchmark index.
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Asset Under Management (AUM): The total market value of assets managed by a financial institution or investment company on behalf of investors.
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Investment Strategies: Various approaches employed by hedge funds to generate returns, including long and short positions in stocks, bonds, commodities, currencies, derivatives, and alternative assets.
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Long and Short Positions: Long positions involve buying an asset with the expectation that its value will increase, while short positions involve selling borrowed assets with the intention of buying them back at a lower price.
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Risk Management: The process of identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the impact of these risks on investment portfolios.
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Leverage: The use of borrowed capital to increase the potential return on investment, but also amplifies the potential losses.
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Volatility: A statistical measure of the dispersion of returns for a given security or market index, indicating the level of uncertainty or risk associated with the investment.
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Regulatory Oversight: The degree of supervision and regulation imposed by government authorities or regulatory bodies on financial institutions and investment products to ensure compliance with laws and protect investors.
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Accredited Investors: Individuals or entities that meet certain income or net worth requirements set by securities regulators, allowing them to participate in certain types of investment opportunities typically not available to the general public.
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Mutual Funds and ETFs: Traditional investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities, with mutual funds being actively managed and ETFs typically passively managed and traded on stock exchanges.
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SEC Regulation: Regulation by the U.S. Securities and Exchange Commission (SEC) aimed at protecting investors, maintaining fair and efficient markets, and facilitating capital formation through the enforcement of securities laws.
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Due Diligence: The investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
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Financial Advisor: A professional who provides financial guidance and advice to clients based on their financial situation, goals, and risk tolerance, helping them make informed decisions regarding investments and financial planning.
By comprehensively understanding these concepts, investors can navigate the intricate world of hedge funds with greater confidence and informed decision-making capabilities.
