Soros Tops Historical Hedge Fund Performers

Date: Tuesday, February 11, 2014
Author: Stephen Taub, Institutional Investor Alpha

The annual study from fund-of-funds firm LCH Investments found that the manager, who closed his firm to outside investment a few years ago, bests most of his peers over the long term.

George Soros’ Quantum Endowment Fund made $5.5 billion in profits last year, net of fees. This suggests that Quantum Endowment gained between 22 percent and 23 percent in 2013.  

As a result, Quantum, managed by New York–based Soros Fund Management, has now generated a total of $39.6 billion in net profits since its 1973 inception, more than any other hedge fund, according to an annual study performed by LCH Investments NV, a London-based fund-of-funds firm.

Soros’ strong performance in 2013 enabled his fund to move back into first place as the most successful hedge fund of all time, by LCH Investments’ calculation. That’s slightly ahead of Raymond Dalio’s Bridgewater Pure Alpha, which has made a total of $39.2 billion since its inception in 1975. Last year it generated “just” $2.2 billion in net gains, according to LCH Investments. Bridgewater Pure Alpha is run by Westport, Connecticut–based Bridgewater Associates.

Rounding out the top ten firms in terms of total net gains since inception: Seth Klarman’s Boston-based Baupost ($27.6 billion); John Paulson’s New York–based Paulson & Co. ($25.4 billion); David Tepper’s Short Hills, New Jersey–based Appaloosa ($21.2 billion); Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine ($20.5 billion); Alan Howard’s London-based Brevan Howard Fund ($17.5 billion); Thomas Steyer’s San Francisco, California–based Farallon ($17.4 billion; now headed by Andrew Spokes following Steyer's retirement last year); O. Andreas Halvorsen’s Greenwich, Connecticut–based Viking ($16.8 billion); and Louis Bacon’s New York–based Moore Capital ($16.5 billion).

The annual ranking is controversial for a few reasons. First, it continues to include the gains made by firms after the founder officially retires, such as Soros Fund Management, as well as New York–based Caxton Global Investments and Farallon Capital. (Soros announced in 2011 that he planned to close his fund to outside investors because he did not want to register with the Securities and Exchange Commission. At the time, he told investors the fund will include only Soros family accounts and related entities.)

LCH Investments also includes only the flagship funds run by or overseen by the principal. So, it does not include all of the funds offered by Brevan Howard, just the ones headed by Howard.

On the other hand, the study does not include James Simons’ East Setauket, New York–based Renaissance Technologies, arguably the greatest hedge fund firm of all time in terms of returns. Says Rick Sopher, chairman of LCH Investments and managing director of Edmond de Rothschild Capital Holdings: “The data is based on estimates by LCH Investments NV. We have not readily been able to estimate the results of Renaissance Technologies.”

Steven Cohen’s SAC Capital slipped one position in the rankings this year, to No. 11, even though it generated $2.6 billion in profits in 2013. Of course, Cohen is winding down SAC, following his firm’s guilty plea to insider trading charges in November 2013. (The firm paid a total of $1.8 billion in fines; Cohen has not been charged with wrongdoing.) It also is interesting to see two Tiger Cubs among the top ten — Mandel and Halvorsen — even though their firms are two of the three youngest in the group.

The absolute dollar figures cited in the study are astounding and underscore how much money has been created by the most successful hedge fund managers. Altogether, hedge fund managers made $192 billion after fees for all investors in 2013, LCH Investments calculated. The top 20 managers alone generated $55.4 billion in net gains. Since their inception, all hedge funds have generated $847 billion in net gains, the firm found. Over the past five years, hedge funds have made an estimated $709 billion, net of fees, for investors.

The current top 20 managers alone made $199 billion over the same time period. These gains more than made up for the $28 billion loss suffered by the 20 managers during the 2008 financial crisis, according to LCH.

The LCH ranking dovetails with Alpha’s annual Rich List, the hedge fund industry’s definitive annual ranking of the previous year’s highest earners. This ranking confirms that the biggest, most successful hedge fund managers, who frequently make the most money personally in a given year, are also making huge sums for their investors, underscoring that everyone’s interests are aligned.

In fact, six of the individuals among the top 20 have qualified for the Rich List between nine and 11 times in the ranking’s first 12 years (excluding 2013, which has not yet been published). During that period, these six individuals — Dalio, Tepper, Cohen, Tudor Investment Corp.’s Paul Tudor Jones II, Millennium Management’s Israel Englander and Och-Ziff Capital Management Group’s Daniel Och — personally earned more than $40 billion, not accounting for losing years or 2013. Also, the founders of ten of the 20 firms on the LCH ranking have been inducted into Alpha’s Hedge Fund Hall of Fame.