World’s Top-Performing Hedge Funds of 2020

Nishant Kumar of Bloomberg reports these are the world’s top-performing hedge funds of 2020:

Tiger Global Management placed first in a world hedge-fund ranking and quant powerhouse Renaissance Technologies was ousted, another sign that trading conditions favored human stock-pickers over algorithms.

The industry reaped $127 billion last year, with some of the biggest firms dominated by human traders racking up record profits, according to estimates disclosed Monday by LCH Investments, a fund of hedge funds. Chase Coleman’s Tiger Global generated $10.4 billion for clients, after fees, and Izzy Englander’s Millennium Management was a close second, with $10.2 billion.

Renaissance, founded by billionaire mathematician Jim Simons, fell from the ranking of 20 firms after some of its public funds lost more than 30% last year. In 2019, it placed third on LCH’s list, which focuses on managers with most total profit since inception and is designed to favor the largest and oldest hedge funds.

The ranking reflects the most-prominent theme of a tumultuous year, with hedge funds making or losing huge sums of money as the Covid-19 pandemic ravaged the globe and central banks unleashed unprecedented stimulus to contain the economic carnage. The biggest of them all, Ray Dalio’s Bridgewater Associates, incurred $12.1 billion of losses.

“In navigating the especially volatile markets of 2020, talented individual managers with vision and flexibility performed better than programmed machines,” LCH Chairman Rick Sopher said in a statement.

His firm’s annual survey is just one way to look at the industry’s profitability, as it may exclude newer or smaller hedge funds that outperformed everyone in the top 20 on a percentage basis.

The 20 managers in the ranking oversaw about 17% of global hedge funds assets and produced roughly 43% of the $1.4 trillion in profit the industry has generated since inception, according to LCH. 

NOTE: Gains are in billions of dollars; *Through June 30, 2020; **Through Dec. 31, 2017; ***Through Dec. 31, 2019. Source: LCH Investments

Svea Herbst-Bayliss of Reuters also reports top hedge funds earn $63.5 billion in 2020, highest in a decade according to LCH data:

The world’s 20 best-performing hedge funds earned $63.5 billion for clients in 2020, setting a record for the last 10 years during a chaotic time when technology oriented stocks led a dramatic rebound from a pandemic induced sell-off, LCH Investments data show.

As a group, the most successful managers earned half of the $127 billion that all hedge funds made last year, LCH Investments, a fund of funds firm that tracks returns and is part of the Edmond de Rothschild group, reported.

Despite the pandemic that triggered a historic stock market sell-off in March, shut down large sectors of the economy and swallowed up millions of jobs, the 20 best hedge funds topped their 2019 returns of $59.3 billion. That was despite 2020 not being as profitable as the previous year for hedge funds as a whole, which saw earnings fall from $178 billion in 2019.

The average hedge fund returned 11.6% in 2020, according to Hedge Fund Research data, lagging behind the S&P 500 index’ 16% gain.

“The net gains generated by the top 20 managers for their investors of $63.5 billion were the highest in a decade. In that sense, 2020 was the year of the hedge fund,” Rick Sopher, LCH’s chairman, said in a statement.

Last year’s biggest earners include Chase Coleman’s Tiger Global, which earned $10.4 billion, Israel Englander’s Millennium, which earned $10.2 billion and Steve Mandel’s Lone Pine with $9.1 billion. Andreas Halvorsen’s Viking Global Investors earned $7.0 billion and Ken Griffin’s Citadel earned $6.2 billion, according to LCH data.

Ray Dalio’s Bridgewater Associates, founded in 1975, held on to the No.1 ranking since inception, with $46.5 billion earned, even after a terrible 2020 during which LCH data show Dalio lost $12.1 billion.

George Soros’ Soros Fund Management, which no longer manages money for outside clients, held on to the No. 2 spot followed by Mandel, Griffin and managers at D.E. Shaw who rounded out the top five performers of all time.

In 2020 only Dalio and John Paulson’s Paulson & Co., which earned billions from housing market bets during the financial crisis, lost money, the data show.

Jim Simons’ Renaissance Technologies, often ranked among the world’s most successful funds because of its Medallion portfolio returns, dropped out of the top 20 performers after the funds it offers to outsiders fell between 20% and 30% last year.

“Conditions favored man over machine and it was notable that Renaissance Technologies, a machine-driven manager, has dropped out of the top 20,” Sopher said.

And Amy Whyte of Institutional Investor reports on the best-performing hedge fund strategies of 2020:

In a volatile year featuring a historic stock rally, hedge fund strategies posted near-universal positive returns — but there was one obvious winner.

Equity hedge funds returned 17.49 percent in 2020, according to new data from research firm HFR. This puts stock fund managers well ahead of the larger hedge fund industry, with HFR’s fund-weighted composite index delivering an 11.61 percent return for the year.

Within the equities category, some strategies were stand-outs: Technology-focused hedge funds earned nearly 28 percent, while health care funds gained almost 26 percent. But the best performers in 2020 were hedge funds investing in the energy and basic materials sector. According to HFR, this strategy gained 33 percent in 2020.

The Standard & Poor’s 500 stock index, by comparison, gained 18.4 percent with dividends re-invested.

But not all equity hedge funds outperformed relative to the stock market. HFR’s fundamental value index ended the year up 14 percent, while the research firm’s quantitative index gained 15.32 percent.

The success of equity hedge funds focusing on sectors like energy, healthcare, or technology this year has been accompanied by a surge of new hedge funds targeting these strategies. According to a December report from hedge fund research firm PivotalPath, equity-sector hedge funds made up 45 percent of funds introduced during the first 11 months of 2020. These strategies had accounted for 32 percent of fund launches over the same period last year.

Outside of equities, the highest-returning hedge fund strategies in 2020 were event-driven funds, which gained 9.3 percent for the year, according to HFR. Macro hedge funds returned 5.22 percent for the year, while HFR’s relative value index ended 2020 up 3.28 percent. 

Highlights within these other categories included event-driven multistrategy funds, which rose 14.55 percent for the year, and fixed-income convertible arbitrage funds, which gained 12.05 percent.

So, last year was a great year for hedge funds run by humans, for a change.

And it was particularly good for technology focused L/S Equity funds which is why Chase Coleman's Tiger Global led the top 20 hedge funds of the world in terms of profitability.

Coleman, 45, has been winning for years. He started his career as a technology analyst at Julian Robertson’s Tiger Management, and his Tiger Global Investments has leaned heavily on tech, especially emerging giants in Asia.

Not surprisingly,  he led the top earners in a $23 billion payday for the top 15 hedge fund managers last year, a list which included Gabe Plotkin of Melvin Capital who got clobbered shorting GameStop:

What is striking, however, is this:

The 20 managers in the ranking oversaw about 17% of global hedge funds assets and produced roughly 43% of the $1.4 trillion in profit the industry has generated since inception, according to LCH. 

In other words, the top 20 managers have almost 20% of the industry's assets but they generate almost half of the profits. That shows you the top funds really generate most of the returns.

What else strikes me? Most of the top funds have been in existence since the mid 90s/ early 2000s (a few a lot earlier), and they've been gathering assets like crazy over the years.

In fact, it's been almost 20 years since I left my role as a senior portfolio manager overlooking directional hedge funds at CDPQ, and it's still the same names dominating the top spots, except they're much bigger and a lot more powerful nowadays.

Every quarter, I go over what top funds bought and sold last quarter. You can read my Q3 2020 comment here.

Q4 2020 data is going to be made available next week but Nasdaq has transformed its site so I need to literally find all the new links for hundreds of top funds I track and make sure they are operational (fun, fun, stick a fork in my eye!).

But I can pretty much tell you what Chase Coleman and his hedge fund buddies were buying last quarter and this quarter, tech stocks like Jumia Technologies (JMIA), Palatir (PLTR), Crowdstrike (CRWD), PayPal (PYPL), Square (SQ) and a bunch of other growth stocks.

In this environment, it's all about growth and disruptive technologies. Nobody cares about profits, it's about which hot tech company is growing its revenues quarter over quarter.

But what is most telling about last year is the Fed and other central banks pumped trillions into the global financial system, and governments spent trillions combating the pandemic.

All those trillions led to massive speculation in the stock market, rewarding billionaire speculators.

So, we shouldn't be surprised tech and healthcare L/S Equity funds shot the lights out (lots of biotech in healthcare sector), as these are the riskiest parts of the market and that's where speculators focused their attention last year.

It's pretty much the same story this year, monetary and fiscal policy are favoring extreme risk-taking.

Except this year, we also had the whole Reddit-WSB-GameStop saga and some well-known hedge funds got burned very badly, exposing public pensions, while others made off like bandits.

All we know now is Renaissance Technologies and Pershing Square, titans of the hedge fund investment world, have had a tumultuous start to the year according to an HSBC industry report, as some managers have scrambled to reposition amid a spike in market volatility.

There are plenty of others but the year is young, so we will have to wait to see who is going to come out on top this year.

I foresee rates rising going into the second half of the year and that's going to present all sorts of challenges for hedge funds betting on tech stocks. Who knows, we shall see.

All I know is there were a lot of hedge fund winners last year that deserve recognition:

  • Pierre Andurand’s oil hedge funds stormed back in 2020 to post their biggest-ever gains as the global pandemic roiled energy markets. His main Andurand Commodities Fund, which mostly bets on rises and falls in oil prices, was up 68.6% for the year, according to a person with knowledge of the matter. The Discretionary Enhanced Fund, a vehicle he started in 2019 that has no set risk limits, surged 154%, said the person, who asked not to be identified because the information is private. That made it one of the year’s best-performing hedge funds.
  • Chris Rokos’s hedge fund racked up its best year since the billionaire investor started his own macro trading firm more than five years ago, joining a string of peers who posted record gains in 2020.His $14.5 billion macro fund soared 44% as the pandemic upended markets, according to people with knowledge of the matter who asked not to be identified because the information is private. 
  • Alan Howard’s Brevan Howard Asset Management LLP gained more than 27% last year for its best performance ever, while other macro funds struggled.

Clearly, those who bet the right way and used big leverage made great returns last year.

Will this year turn out to be the same? I doubt it but who knows.

Below, an interview with one of the greatest money managers of all time. In this episode of Talks at GS, investor Stanley Druckenmiller discusses his current outlook on the market, his approach to risk management throughout his career, and his perspective on the conversation surrounding the role of capitalism in American society. Great insights, listen carefully to Druckenmiller.