One year ago
»» We called on our readers to ensure we considered the track records of all the best-performing hedge fund managers as we computed our annual awards, which measure risk-adjusted returns. Citadel took home the top trophy; its Wellington Fund won our award for fund of the year. Pine River Capital took our award for management company of the year.
Who should top our list this year? We’re now accepting nominations for the 2013 Absolute Return Awards, which will be presented in February 2014. Funds seeking a space on our roster should report their performance to the Absolute Return database and fulfill our nomination criteria.
Five years ago
»» Sitting before a Congressional hearing in Washington, DC., five of the industry's highest-paid hedge fund managers called for greater scrutiny of their industry. George Soros of Soros Fund Management, James Simons of Renaissance Technologies, Phil Falcone of Harbinger Capital, and John Paulson of Paulson & Co. agreed that funds should be required to disclose more information on positions and leverage, as long as the information was not made public. Only Ken Griffin of Citadel was hesitant to endorse increased regulation, saying it wasn’t necessary, but admitting that the global financial system might have become “too interconnected to fail.”
These five managers represented the crème de la crème of the hedge fund world at the time. The last five years have been eventful for them—not positively in all cases.
Harbinger Capital has shrunk from the $24 billion it managed in the middle of 2008 to $3 billion as of midyear 2013, according to the Billion Dollar Club. Legal troubles certainly didn’t help. In August, Falcone agreed to a five-year ban from the securities industry after the U.S. Securities and Exchange Commission accused him of “serious misconduct that harmed investors.” Falcone was accused of using investor money to pay his taxes and giving some clients preferential treatment when returning invested capital.
Both Soros and Simons have since left the industry: Soros by returning capital to investors, and Simons by retiring and handing the reins to Peter Brown and Robert Mercer. Soros’s fund, with $17 billion in assets in 2008, was mostly his personal fortune, so that even after returning capital his family office has grown to an estimated $24 billion. Assets managed by Renaissance Technologies fell from $34 billion in midyear 2008 to $24 billion five years later.
After earning outsized returns on the subprime housing trade that inspired the The Big Short and The Greatest Trade Ever, Paulson & Co. has struggled; the firm’s flagship Advantage Fund suffered double-digit losses in 2011 and 2012, though it returned 9.45% in the third quarter of 2013, putting it up 11.01% for the year. With $16.75 billion under management as of midyear, the firm remains well below the $34.94 billion in assets it commanded in mid- 2008.
Ironically, Paulson has railed against the regulation he appeared to endorse in 2008. In 2012, he called the U.S. Securities and Exchange Commission’s new hedge fund reporting requirements “a complete waste of time.”
Meanwhile, Citadel has been the hedge fund world’s comeback kid. It had $20 billion under management in mid- 2008. By the end of the year, it had lost $7 billion in assets and its Kensington and Wellington funds were down 53%. In December 2008, Absolute Return wondered whether Citadel could ever recover.
Although it now manages about three quarters ($15 billion) of the assets it managed five years ago, Citadel has since generated impressive returns for investors, with the firm's Wellington fund winning the Absolute Return Fund of the Year Award in 2012.