Size matters, it would seem, in the world of elite hedge fund managers. George Soros' Quantum Fund had its 2nd-best year on record, adding $5.5bn (22%) to the pound-breaking billionaire's horde and has now shifted above Ray Dalio's Bridgewater fund as the most successful hedge fund of all time. As The FT reports, since inception in 1973, Quantum has generated almost $40bn. Four other funds including Tepper's Appaloosa, Mandel's Lone Pine, and Klarman's Baupost also made more than $4 bn for their investors. Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.
Just over a year ago, in one simple graphic, we showed why Bridgewater, which currently manages around $150 billion, is the world's biggest hedge fund. Quite simply, its flagship $80 billion Pure Alpha strategy had generated a 16% annualized return since inception in 1991, with a modest 11% standard deviation - returns that even Bernie Madoff would be proud of. And, true to form, according to various media reports, Pure Alpha's winning ways continued in 2013, when it generated a 5.25% return: certainly underperfoming the market but a respectable return nonetheless. However, Pure Alpha's smaller cousin, the $70 billion All Weather "beta" fund was a different matter in the past year. The fund, which touts itself as "the foundation of the "Risk Parity" movement", showed that in a centrally-planned market, even the best asset managers are hardly equipped to deal with what has largely become an irrational market, and ended the year down -3.9%.
"Return = Cash + Beta + Alpha": An Inside Look At The World's Biggest And Most Successful "Beta" Hedge FundSubmitted by Tyler Durden on 01/23/2013 22:31 -0400
Some time ago when we looked at the the performance of the world's largest and best returning hedge fund, Ray Dalio's Bridgewater, it had some $138 billion in assets. This number subsequently rose by $4 billion to $142 billion a week ago, however one thing remained the same: on a dollar for dollar basis, it is still the best performing and largest hedge fund of the past 20 years, and one which also has a remarkably low standard deviation of returns to boast. This is known to most people. What is less known, however, is that the two funds that comprise the entity known as "Bridgewater" serve two distinct purposes: while the Pure Alpha fund is, as its name implies, a chaser of alpha, or the 'tactical', active return component of an investment, the All Weather fund has a simple "beta isolate and capture" premise, and seeks to generate a modestly better return than the market using a mixture of equity and bonds investments and leverage. Ironically, as we foretold back in 2009, in the age of ZIRP, virtually every "actively managed" hedge fund would soon become not more than a massively levered beta chaser however charging an "alpha" fund's 2 and 20 fee structure. At least Ray Dalio is honest about where the return comes from without hiding behind meaningless concepts and lugubrious econospeak drollery. Courtesy of "The All Weather Story: How Bridgewater created the All Weather investment strategy, the foundation of the "risk parity" movement" everyone else can learn that answer too.
In a world where "3 and 50" funds are revealed to be nothing but expert network-boosted Armstrong clones, performing great until exposed for having been boosted to the brim with stimulants, in this case inside information, or where even serious players are caught in ego pissing contests over who is right and who is wrong over a given stock (Herbalife comes to mind) it becomes almost difficult to find true alpha generators, which outperform the market not due to non-public, material information. Yet they still do exist, and probably the best example of one, continues to be Ray Dalio's Bridgewater, a fact which is not lost on us, or the bulk of the sophisticated asset allocators out there. As per the firm's latest monthly update, the hedge fund's total AUM has risen to a mind-blowing $142.1 billion - a record for any hedge fund anywhere, of which $60.8 billion is allocated to Pure Alpha, the firm's active strategy.
For those who want to imitate what is once again the world's largest hedge fund (reclaiming the spot from Apple's own prop trading vehicle, Braeburn, first exposed here), Ray Dalio's Bridgewater, which at last check had $138 billion in AUM ($76 billion Pure Alpha, $63 billion All Weather), the path is simple: just recreate the performance shown on the chart below over a period of two decades. (Oh and stop "trading" on Twitter and do some real trading).
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There Is No Joy In Muddlethroughville: World's Biggest Hedge Fund Is Bearish For 2012 Through 2028, And Is Long GoldSubmitted by Tyler Durden on 01/02/2012 23:33 -0400
That Ray Dalio, famed head of the world's largest (and not one hit wonder unlike certain others) hedge fund has long been quite bearishly inclined has been no secret. For anyone who missed Dalio's must see interview (and transcript) with Charlie Rose we urge you to read this: "Dalio: "There Are No More Tools In The Tool Kit." For everyone who is too lazy to watch the whole thing, or read the transcript, the WSJ reminds us once again that going into 2012 Dalio's Bridgewater, which may as well rename itself Bearwater, has not changed its tune. In fact the CT hedge fund continues to see what we noted back in September is the greatest threat to the modern financial system: a debt overhang so large, at roughly $21 trillion, that one of 3 things will have to happen: a global debt restructuring/repudiation; global hyperinflation to inflate away this debt, or a one-time financial tax on all individuals amounting to roughly 30% of all wealth. That's pretty much it, at least according to mathematics. And according to Bridgewater. From the WSJ: "Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view...What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in." So basically scratch everything between 2012 and 2028? But, but, it was that paragon of investment insight Jim "Bloody Ridiculous Investment Concept" O'Neill keeps telling us stocks will go up by 20%... stocks will go up by 20%....stocks will go up by 20%...
There is one hedge fund manager who I'll never forget, Ray Dalio of Bridgewater...
In his annual letter to investors, Ray Dalio, whose $80 billion Bridgewater fund is doing phenomenally well, returning almost 9% in 2008, had some advice and warnings to investors.