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The 10 Largest Hedge Funds in The World
The financial universe has several different types of asset classes that investors can choose from. These range from stocks, mutual funds, bonds, ETFs, and more. One such alternative asset class that investors can deploy their capital in are hedge funds. You might be wondering what a hedge fund is. Well, we at Financial Education believe in simplifying finance, and this article will help you understand everything about the world’s top hedge funds.
A hedge fund is considered an alternative investment and is a type of pooled investment fund that trades and invests in highly liquid assets. These funds make use of advanced trading strategies and strategic portfolio construction in order to improve their returns and performance. Hedge funds often trade in derivatives and use leverage to their advantage. However, hedge funds are generally only accessible to accredited investors with large capital as hedge funds have fewer SEC regulations than other types of funds. Founder of Financial Education, Jeremy Lefebvre believes that adding alternative investments like hedge funds to your portfolio can help with diversification and better asset allocation.
There are several hedge funds worldwide and more than 3,600 hedge funds are registered in the United States alone. The overall value of assets under management by all the global hedge funds combined was over $3.8 trillion in 2020. The largest share of these assets are managed by hedge fund managers based in the United States. With the hedge fund industry booming, more and more investors are allocating their capital in this alternative investment class. In this article, we shall go over the 10 largest hedge funds in the world, based on the 2020 reports of their assets under management, and learn more about them. So, let’s get started!
1. Renaissance Technologies
Renaissance Technologies LLC or also known as RenTech is one of the largest hedge funds in the United States. Founded in 1982 by James Simons, an award-winning mathematician and former Cold War code breaker, this hedge fund operates out of East Setauket, New York City. Considered as one of the most successful hedge funds in the world, Renaissance Technologies has over $165 billion in assets under management. The firm specializes in systematic trading using quantitate models that are derived from mathematical and statistical analytics.
Renaissance Technologies’ signature Medallion Fund was founded in 1988. This is the firm’s most profitable portfolio. According to Financial Education, the Medallion fund is known for having the best record in investing history on Wall Street, generating over 65% annualized returns from 1988 to 2018. Renaissance has two portfolios for general investors; Renaissance Institutional Diversified Alpha (RIDA) and the Renaissance Institutional Equities Fund (RIEF). Due to the fund’s incredible performance, founder James Simons is often called the “best money manager on earth”.
2. Bridgewater Associates
Founded by American billionaire investor Ray Dalio, Bridgewater Associates is one of the world’s largest investment management firms with over $140 billion in assets under management as of March 2021. Founded in 1975, the asset management firm serves several clients that include foundations, pension funds, endowments, foreign governments, and central banks amongst other clients. Bridgewater Associates utilizes an effective global macro investing approach that is based on economic trends such as currency exchange rates, inflation, U.S. gross domestic product, and more.
Originally based in New York City, Bridgewater Associates moved its headquarters to Westport, Connecticut in 1981. With over 1500 employees, their investment strategies are driven by a tireless pursuit that is based on global and macro trends. Utilizing strategies created by Ray Dalio such as Pure Alpha and All Weather, the investment management firm generates around 11.5% annualized returns. According to Financial News, Bridgewater Associates was the fastest growing asset management company from 2000 to 2005, until they stopped accepting new accounts. According to the founder of Financial Education, Jeremy Lefebvre, Ray Dalio is one of the most successful investors and fund managers in the world, who is also known as “the Steve Jobs of Investing”.
3. Millennium Management
Founded by Israel Englander in 1989, Millennium Management is an asset management firm that offers a multistrategy hedge fund offering. With over $51 billion in assets under management as of the second quarter of 2020, Millennium Management is one of the world’s largest alternative asset management firms that operates globally in America, Europe, and Asia.
Generating over 10% annualized returns, the investment management firm utilizes a mix of both technical analysis and fundamental analysis to utilize high-risk investment classes such as derivatives and offset their risk by investing in fixed income assets. This asset management firm is made up of almost 200 investment teams that manage the fund’s investments. Headquartered in New York City, Millennium management employs over 2,800 people.
4. Elliott Management
Elliott Management Corporation is an American asset management firm headquartered in New York City. The firm is one of the largest activist funds in the world with over $42 billion in assets under management as of the second quarter of 2020. Founded by Paul Singer in 1977, the firm is the management affiliate of American hedge funds Elliott Associates L.P. and Elliott International Limited. Elliott Management is often described as a vulture fund, that invests in distressed assets, often looking to capitalize on potential opportunities.
The founder and CEO, Paul Singer announced in October 2020 that the firm was relocating its headquarters to West Palm Beach, Florida. The firm is currently closed to new investors and employs more than 450 people in cities like London, New York City, Tokyo, and Hong Kong. In 2015, Institutional Investor/Alpha magazine gave Elliott an A grade and the number 9 ranking among hedge funds worldwide.
BlackRock Inc. is a multinational asset management corporation based in New York City. With over $9 trillion in overall assets under management as of June 2021, BlackRock is by far the world’s largest asset manager that operates globally in more than 30 countries and has clients in over 100 countries. Founded by Larry Fink, Robert S. Kapito, Susan Wagner, Barbara Novick, Ben Golub, Hugh Frater, Ralph Schlosstein, and Keith Anderson in 1988, BlackRock was initially a risk management and fixed income institutional asset manager.
According to Financial Education, the firm manages its humongous AUM across asset classes such as insurance companies, pension plans, banks, mutual funds, hedge funds, sovereign wealth funds, corporations, charities, official institutions, and more. Employing over 16,000 people in more than 70 offices around the globe, BlackRock is the largest asset management corporation in the world.
6. Two Sigma Investments
Headquartered in New York City, Two Sigma Investments is a hedge fund that is known for using a variety of technological methods. These methods are used for designing their trading strategies, which include; machine learning, artificial intelligence, and distributed computing. Founded in 2001 by John Overdeck, David Siegel, and Mark Pickard, Two Sigma Investments has more than $58 billion in assets under management. In 2016, Two Sigma Investments also introduced their first artificial intelligence challenge called “Halite”. Halite is a programming game inviting coding enthusiasts to build smart bots whose goal is to gain control of a virtual grid.
With around 20 years of experience offering its services to HNI investors and institutions, this hedge fund is relatively new compared to others on this list. However, the firm has annualized more than 30% returns annually using its highly technological approach. According to Two Sigma, the firm’s name was chosen to reflect the duality of the word sigma. A lower case sigma, σ, designates the volatility of an investment’s return over a given benchmark, and an upper case sigma, Σ, denotes sum.
Citadel LLC or previously known as the “Citadel Investment Group” is a multinational hedge fund and financial services company headquartered in Chicago, Illinois. Citadel was founded by Kenneth Griffin in 1990 when he was a 19-year-old student at Harvard. With over $35 billion in assets under management, Citadel is one of the largest alternative asset managers in the world. This firm is one of the leading market makers in the world that trades in equities, commodities, fixed income securities, equity options, and interest rate swaps.
According to Financial Education, Citadel employs more than 1,400 people and operates globally in North America, Europe, and Asia. Often known for their short-selling and betting against the market strategy, Citadel generates more than 18% returns annually. Citadel is one of the largest hedge fund managers in the world and continues to dominate Wall Street.
8. D.E. Shaw & Co.
D.E. Shaw & Co. is a multinational asset management firm that was founded by David E. Shaw in 1988. Based out of New York City, D.E. Shaw & Co. is known for its unique investment strategies that involve developing complicated mathematical models and the use of advanced computer programs. These programs are designed to exploit and capitalize the anomalies in the market. The firm manages over $50 billion in assets under management, out of which $30 billion is invested in alternative investments while the remaining capital is utilized in long-term investments.
Using its complicated mathematical systems, D.E. Shaw & Co. generates an average of 10% annualized returns. According to Financial Education, D.E. Shaw & Co. employs around 1,400 people and is known for its educational programs like the American Regions Mathematics League, The International Mathematics Olympiad, and Worldwide Online Olympiad Training, amongst others. According to “Institutional Investor”, D.E. Shaw & Co, delivered the fifth-highest returns globally since its inception.
9. AQR Capital Management
Founded by Cliff Asness, David Kabiler, John Liew, and Robert Krail in 1998, AQR Capital Management is a multinational asset management firm headquartered in Greenwich, Connecticut, United States. The founders of AQR Capital Management are regarded as financial experts who excel in their profession. The investment management firm offers a wide range of qualitative-driven alternative and traditional investment options to both institutional clients and financial advisors.
Utilizing a research-based “systematic and consistent approach” to investing and portfolio construction, AQR Capital Management has amassed over $32 billion in assets under management. With offices in global locations like Boston, Bangalore, Hong Kong, Sydney, London, and Tokyo, AQR Capital Management employs more than 1,000 people. AQR Capital Management was titled as a “Category Leader” in Morningstar’s ranking for 2015.
10. Davidson Kempner Capital Management
Founded in May 1983 by Marvin H. Davidson, Davidson Kempner Capital Management was initially known as “M.H. Davidson & Co.”. Davidson Kempner Capital Management is a global institutional alternative investment management firm that has amassed over $34 billion in assets under management. Headquartered in New York City, the firm has offices in several locations that include Dublin, London, Hong Kong, and Philadelphia and employs over 300 people. Davidson Kempner Capital Management is ranked as the 9th largest hedge fund in the world and is led by Anthony A. Yoseloff, who is the Executive Managing Member and Chief Investment Officer for the firm.
Davidson Kempner Capital Management is known for its bottom-up investing approach and specialization in the fundamental analysis of assets. They generally focus on asset classes such as equity, convertible bonds arbitrage, distressed investments, credit, and more. According to Financial Education, in Summer 2020, the firm rescued Virgin Atlantic with $170 million of emergency funding to help offset the impact of the COVID-19 pandemic on the airline.
We hope that this article provided you with valuable information and gave you an in-depth look into the world of hedge funds. However, before making any investment decision, always check the current market conditions and other factors that might affect the value of an asset class, as investments in the financial market are subject to market risk. If you liked this article, make sure to visit Jeremy Lefebvre’s YouTube channel “Financial Education” for more such informative content! Happy investing!