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“The year of the hedge fund”: Stock market surge drives industry success, as largest managers dominate

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The world’s 20 biggest hedge fund firms took home around half of all gains made by the entire industry last year, as successful stock-picking and individual manager skill sent returns soaring among the sector’s behemoths, leaving quant-based strategies in their wake.

Overall, the hedge fund industry generated UD127 billion net of fees last year, according to new research by LCH Investments, a fund of hedge funds which is part of the Edmond de Rothschild Group.

Some USD63.5 billion of that total was generated by the top 20 largest hedge fund managers, including the likes of Tiger Global, Millennium Management, and Lone Pine.

Rick Sopher, chairman of LCH Investments, described 2020 as “the year of the hedge fund”, and said the top 20 managers’ gains were the highest in a decade.

“In 2020, the best hedge fund managers generated substantial returns while limiting downside risk, which is exactly what they are meant to do,” Sopher observed. He said further falls in bond yields, coupled with soaring equity markets, have further reduced the appeal of traditional bond/equity portfolios among investors.

Some of the biggest winners and best returns last year were generated from the stock market bounce following the Q1 coronavirus crash, with many managers taking profits from successful long bets on growth stocks, such as technology.

Overall, Tiger Global generated the most money last year, with a USD10.4 billion gain.  Chase Coleman’s equity-focused firm is a new entry in LCH’s top 20 list, with its returns generated predominantly from its net long-biased equity strategy.

Tiger Global is one of three managers in the top 20 – alongside Viking and Lone Pine, which also profited handsomely from stock market trades last year – to have spun out from Julian Robertson’s famed Tiger Management, which closed in 2000.

Tiger Global’s gain was followed closely by Millennium Management, Izzy Englander’s pioneering multi-portfolio-manager platform set-up, which generated USD10.2 billion last year. Steve Mandel’s Lone Pine meanwhile made USD9.1 billion.

“In navigating the especially volatile markets of 2020, talented individual managers with vision and flexibility performed better than programmed machines,” Sopher added, indicating hedge funds proved they can still offer an alternative of strong returns while curbing downside risk.

“Those managers able to differentiate between sector winners and losers made spectacular gains. Several managers playing directional macro themes also achieved exceptionally good results.”

Meanwhile, Ray Dalio’s Bridgewater Associates suffered a USD12.1 billion hit amid 2020’s market upheaval – but it remains by far the world’s largest hedge fund with more than USD101.9 billion in assets. 

“Conditions favoured man over machine,” Sopher said, and Renaissance Technologies proved another high-profile casualty of 2020.  Jim Simons’ long-running systematic hedge fund firm dropped out of LCH’s top 20 ranking altogether after its funds suffered double-digit losses in percentage terms last year.

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