Ten Years of Absolute Return: Top 10 of 2013

By Lawrence Delevingne

Wed May 29, 2013

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How did the largest hedge fund firms get to where they are today? Absolute Return looks back on a decade of growth at the Billion Dollar Club's ten biggest names.

Bridgewater Associates

Bridgewater Associates
2003 2013
Leadership Ray Dalio, Bob Prince, Greg Jensen
Assets ($B) $2.6 $83.3
BDC Rank #1
Flagship performance 
2003 to 2012
Bridgewater Pure Alpha Trading Company II
288.29% cumulative
14.53% annualized

Bridgewater is easily the biggest growth story of the past decade. Founder Ray Dalio understood early on about institutional investors' demand for relatively consistent, transparent hedge fund returns, quickly growing his hedge fund firm to be the largest in the world. Today, Westport-based Bridgewater employs about 1,400 people and manages about $150 billion in both hedge fund and leveraged beta products, all for pensions, endowments and other institutions. Dalio is still central to the firm, but has worked to pass on responsibilities to co-chief investment officers Bob Prince and Greg Jensen and a growing management committee. As AR noted in a 2011 cover story, the firm's unique culture of "radical truth" results in high turnover among junior staff and has attracted some unflattering press, but strong returns and high-transparency have kept investors happy (the firm has won a variety of awards, including the 2011 management firm of the year from AR). With public pensions increasingly looking to hedge funds to help make up for obligation shortfalls, Bridgewater is positioning itself as the ideal money manager and is building a new $750 million, 850,000 square foot headquarters in Stamford.

J.P. Morgan Asset Management

J.P. Morgan Asset Management
2003 2013
Leadership Jes Staley Mary Callahan Erdoes
Assets ($B) $8.3 $44
BDC Rank #2
Flagship performance
Jan 2003 to June 2006
Highbridge Multi-Strategy Fund
81.14% cumulative
6.12% annualized

J.P. Morgan's hedge fund offerings have grown quickly since late 2002, when the bank had 143 employees devoted to single manager offerings spread among New York, London, Geneva and Tokyo. In 2004, J.P. Morgan bought a controlling interest in Glenn Dubin and Henry Swieca's Highbridge Capital Management; in 2007, it created Highbridge Principal Strategies, a private credit division; and in 2010 acquired a controlling interest in Gavea Investimentos, the Brazilian alternative asset management firm. Highbridge was a big initial success: J.P. Morgan paid about $1.3 billion in 2004 for the then-$7.4 billion firm; assets shot to $36.7 billion by July 2007. But the financial crisis hit the firm especially hard. The flagship fund fell about 27% in 2008, resulting in large investor redemption requests. The firm gated some withdrawals but by the start of 2009, assets were down to $17.3 billion, as AR noted in a 2009 cover story, Highbridge's Dubin takes charge. Today, J.P. Morgan is the second largest hedge fund firm in the U.S. with 524 employees and offices in New York, London, Geneva, Hong Kong, Rio de Janeiro, Sao Paulo and Singapore. Mary Callahan Erdoes oversees hedge funds as chief executive officer of J.P. Morgan Asset Management since 2009; Robert Klein is global head of hedge fund strategies.

Och-Ziff Capital Management Group

Och-Ziff Capital Management Group
2003 2013
Leadership Dan Och
Assets ($B) $6
$31.9
BDC Rank #3
Flagship performance
2003-2012
OZ Master Fund
139.22% cumulative
9.11% annualized

Oct Ziff's assets grew sharply from about $6 billion at the end of 2002 to $29.7 billion in late 2007 when the multistrategy investment manager took the unusual step of going public. At the time, the flagship OZ Master Fund had produced a net annualized return of 16.7% since Goldman Sachs alum Dan Och launched the firm in 1994 with Ziff Brothers Investments. Assets peaked at $33.4 billion in 2007, but fell to $23.1 billion in 2009, following a 15.9% flagship loss in 2008. Besides a 23.1% gain in 2009, performance has been purposefully muted since going public: up 8.5% in 2010; down 0.5% in 2011 and up 11.6% in 2012. In 2011, Och-Ziff launched a UCITS fund, adding another public structure. Overall, Och-Ziff has 468 employees (137 in investments) working from New York, London, Hong Kong, Mumbai and Beijing. The stock price is down about 59% since the IPO in November 2007 to $11.30 a share as of May 30.

Baupost Group

Baupost Group
2003 2013
Leadership Seth Klarman
Assets ($B) $3.7 $26.7
BDC Rank #4
Flagship performance
2003 to 2012
Baupost Value Partners
298.88% cumulative
14.8% annualized

As AR noted in a 2010 cover story, The value of Seth Klarman, the Baupost Group principal is considered the dean of value investing in the hedge fund industry. His cautious money management style, paired with strong returns, has attracted tremendous inflows since 2003, when the firm managed slightly more than $3 billion. In 2008, Klarman reopened Baupost to new investors for the first time in eight years, raising about $4 billion, all from longer term investors like foundations--and not funds of funds. Boston-based Baupost typically keeps about a third of its portfolio in cash and avoids leverage, making its near-15% annualized return in the past 10 years even more impressive. The firm has about 200 employees today, including 51 in investments, all in its main office.

BlackRock

BlackRock
2003 2013
Leadership Rob Kapito
Carl Eifler
Assets ($B) $1.6 $26.6
BDC Rank #5
Flagship performance
2003 to 2012
Obsidian Fund
197% cumulative (est.)
11.5% annualized

Larry Fink's $3.79 trillion BlackRock used a series of acquisitions to cement its place as an alternatives powerhouse, most importantly buying Barclays Global Investors for $13.5 billion in June 2009. That deal transformed it overnight into the world's largest money management firm, taking its hedge fund assets from $4.8 billion in January 2009 to $16.1 billion in January 2010. Besides BGI, BlackRock also built its single-manager hedge funds business with pieces of State Street, Merrill Lynch and Quellos Group, as AR noted in a December 2011 cover story, Decoding BlackRock's Black Box. Carl Eifler is now global head of the hedge fund platform within BlackRock's Alpha Strategies Group and single manager strategies include macro, fixed income and equity funds, all of which can use the broader firm's vast research and data. New York-based BlackRock has managed hedge funds since 1996 and runs more than $26 billion in single manager vehicles today, down from $29.62 billion in July 2011. This March, BlackRock appointed Carl Eifler as global head of the hedge fund platform within BlackRock's Alpha Strategies Group.

Adage Capital Management

Adage Capital Management
2003 2013
Leadership Phill Gross and Robert Atchinson
Assets ($B) $5 $18
BDC Rank #6
Flagship performance 
2003 to 2012
Adage Capital Partners
175% cumulative (est.)
10.65% annualized (est.)

Former Harvard University endowment equity analysts Phill Gross and Robert Atchinson launched Adage in 2001 and have quickly grown it into one of the country's largest firms despite eschewing the hedge fund category into which they technically fit. Stock-focused Adage has grown in assets from mostly endowment and foundation clients thanks to its unique, low fee model and simple goal of trying to beat the S&P 500 Index by 2% to 4% each year. It largely has, producing an estimated annualized return in the last decade of 10.5%, compared with a 7.06% compound index return for the same period. Assets have shot up to $25 billion in January (including long only funds) from $16 billion one year earlier and $8.3 billion two years ago.

Renaissance Technologies

Renaissance Technologies
2003 2013
Leadership Jim Simons
Peter Brown and Bob Mercer
Assets ($B) $5.6 $22
BDC Rank #7
Flagship performance
Aug 2005 to Dec 2012
Renaissance Institutional Equities Fund International
84.21% total
7.59% annualized

Quantitative pioneer Renaissance sucked in billions of dollars by launching Renaissance Institutional Equities Fund in 2005, which was marketed as having a $100 billion capacity, followed by the Renaissance Institutional Futures Fund in 2007. Investors were eager to get Medallion fund-type returns--about 45% a year net of fees, according to The Wall Street Journal--but the funds disappointed with mediocre returns in the first few years. Founder Jim Simons stepped down as chief executive in January 2010, passing on leadership to Peter Brown and Bob Mercer, who are now co-CEOs. Futures fund returns have continued to disappoint but equity fund returns have been strong, including gains of 16.42% in 2010, 34.73% in 2011 and 9.42% in 2012. Last year, the New York-based 280-person firm also launched the stocks and futures focused Renaissance Institutional Diversified Alpha Fund.

Elliott Management

Elliott Management
2003 2013
Leadership Paul Singer
Assets ($B) $3.1 $21.47
BDC Rank #8
Flagship performance
2003 to 2012
Elliott Associates
261.59% cumulative
13.72% annualized

Paul Singer's Elliott has grown substantially in the last decade thanks to his firm's tough, successful brand of distressed activist investing. Elliott has been involved in multiple high-profile, long term fights, most notably with the governments of Congo-Brazzaville and Argentina and the boards of Novell and Hess Corporation. Singer also warned about a potential financial crisis before 2008 and later helped resolve the bankruptcies of Lehman Brothers and Chrysler, as described in a 2009 AR profile, " Paul Singer takes a left turn." It has largely worked: the flagship Elliott Associates fund produced a cumulative return of 261.59% in the last decade. Singer has no immediate plans to retire but has taken steps to ensure a smooth succession. He added equity partners and created a post-Singer board of directors that includes Jonathan Pollock, co-chief investment officer and his son, head of global event arbitrage strategies Gordon Singer. Elliott expanded its global multistrategy business to include distressed investing, event-driven, equity-oriented, structured credit, real estate and commodities. The firm now has offices in New York, London, Tokyo and Hong Kong with 275 employees, 123 of whom are on the investment side.

D. E. Shaw Group

D. E. Shaw Group
2003 2013
Leadership David Shaw Louis Salkind, Anne Dinning, Max Stone, Julius Gaudio, Eric Wepsic
Assets ($B) $4 $20.95
BDC Rank #9
Flagship performance
2003 to 2012
D. E. Shaw Composite
170.88% cumulative
10.48% annualized

Quantitative firm D. E. Shaw Group increased its assets significantly even as its founder, David Shaw, stepped back. Today the firm is managed by Louis Salkind, Anne Dinning, Max Stone, Julius Gaudio and Eric Wepsic and manages $28 billion overall, including $20.95 in hedge fund assets and about $7 billion in long only and 130/30 strategies. The financial crisis hurt D. E. Shaw (the composite fell 11.9% in 2008) causing the firm to gate some investors. Once the restrictions were lifted, assets fell nearly 40% in 2010. Those problems prompted the firm to lay off about 10% of its staff, cut management and performance fees, and make its investments more liquid, as AR noted in 2011. The firm now employs about 1,000-people--down from 1,200 in 2011--and remains known for hiring from outside of finance, with more than 50 Ph.D.s, almost 40 company founders and dozens of published authors on staff. D. E. Shaw has also been active in Washington: former Secretary of the Treasury Larry Summers worked at the firm from 2006 to 2008, and director of external affairs Darcy Bradbury has served as chairman and remains a leader of the Managed Funds Association.

Canyon Capital Advisors

Canyon Capital Advisors
2003 2013
Leadership Josh Friedman and Mitch Julis
Assets ($B) $2.12 $20.56
BDC Rank #10
Flagship performance
2003 to 2012
Canyon Value Realization Fund
163.20% cumulative
10.16% annualized

Debt-focused multistrategy firm Canyon expanded greatly during the decade and now has $20.56 billion under management and 200 employees, including more than 100 investment professionals. Most of the senior Canyon team has been in place throughout the past 10 years with the exception of chief operating officer John Simpson, who joined in 2005, and mortgage-backed securities and structured credit specialist George Jikovski, who joined in 2007. The Los Angeles-based firm diversified itself with the launch of emerging markets focused ICE Canyon in 2006 and recently partnered with Lyxor Asset Management to launch the Lyxor/Canyon Credit Strategy Fund, a UCITS fund. In 2004, the firm also launched the Canyon Balanced Fund to invest in a more concentrated way in strategies with more equity-like returns. The flagship Value Realization Fund fell 29.25% in 2008 in part because of bets on bank debt and high-yield credit. Canyon side-pocketed roughly 40% of its flagship fund, angering some investors and causing AUM to dip to $11 billion, as AR noted in a 2011 cover story " Canyon's capital matters." Performance has gained traction since, thanks in part to a heavy RMBS allocation.