Barron`s first ranking of the world`s best-performing hedge funds

Date: Monday, October 1, 2007
Author: Barron's

We developed our list based on cumulative three-year returns, net of fees, for funds with $250 million or more in assets...Barron's worked with two hedge-fund research firms, BarclayHedge (www.barclayhedge.com) and Credit Agricole Structured Asset Management Advisers, which gather performance data from thousands of funds. We then confirmed their information with the hedge funds and supplemented it with reporting by Randall S. Devere, the former editor of MARHedge, a publishing and information services firm for alternative investments.

We chose to use three-year performance (through June 30, 2007), net of fees, to avoid fledgling funds that have enjoyed a year or two of stellar returns. And we opted for a minimum fund size of $250 million; again the idea was to restrict our Hedge Fund 50 to established firms with demonstrable track records. Barron's also eliminated sector, country and focused regional funds because we wanted to highlight savvy investors, rather than those whose narrow mandates happened to put them in, say, hot sectors such as energy or China in the past few years.

Who's on our list? At the top: RAB Special Situations (up an average of 47.69% a year for three years), The Children's Investment Fund (44.27%), Highland CDO Opportunity (44.12%), BTR Global Opportunity (43.42%) and SR Phoenica (43.10).

We were surprised that some well-known funds didn't make the grade, though they came close. Citadel Investment Group's $4 billion Citadel Wellington fund missed by a hair, returning 20.25% on a compound annual basis for the 36 months ending in June, according to our sources. Pequot Capital, Greenlight Capital and GLG Partners also had funds with returns topping 18% in that time, sources say. Lone Pine Capital and Cerberus Capital weren't far behind, with gains of at least 16% for funds that easily met our asset minimum, sources said.

A couple of the industry's top funds -- quant-trading powerhouse Renaissance Technologies' Renaissance Medallion Fund and ESL Investments' flagship ESL Partners -- each would have likely merited a spot. Both boasted returns of at least 35% annually for the three years through 2006. But we weren't able to obtain dependable year-to-date figures for either of them.