Despite the record inflows into passive investing products and a record amount of Fed liquidity constantly forcing U.S. equity markets to all time highs, there are still some "old school" hedge fund managers on the street managing to cash big checks.
In fact, there were five managers who each made over $1 billion last year, Bloomberg reports. Collectively, they round out a group of 15 managers who collectively earned $12 billion last year. Yet only a third of the managers on the list of 15 beat the S&P last year, which was up 29%.
Chris Hohn, Jim Simons, Ken Griffin, Steve Cohen and Chase Coleman all made more than $1 billion each.
Of course, this comes amidst a larger discussion about hedge fund managers, who have been notoriously unable to follow the S&P's returns over the last decade. Opponents to funds claim it's a cash grab when so many passive investing tools are available. Advocates for hedge funds say their strategies are for both bull and bear markets, and that they shouldn't be compared to the S&P index during the midst of a decade long bull market.
Many funds all bet on the same names: more than half on the list owned both Alibaba and Facebook, for instance.
Darren Wolf, head of alternative investment strategies for the Americas at Aberdeen Asset Management said: "If that’s where the opportunity is, it’s where it is. But it creates challenges for us, because Aberdeen’s clients are already invested in indexes heavily weighted with tech stocks."
Most managers on the list charge 20% fees on gains. Marcus Frampton, chief investment officer for Alaska Permanent Fund Corp., which manages $68 billion said he is “happy to pay 20% in fees” if a fund can consistently beat its benchmark.
“That represents skill, not market exposure,’’ he said.
Chris Hohn's fund made 41% in 2019, putting him at the top of the list. His key bets were on Alphabet, Inc. and Microsoft. Ken Griffin made $1.5 billion through his multi-strategy funds, not including his market making at Citadel. Jim Simons cashed in even though he retired from Renaissance Technologies 10 years ago. Finally, Bridgewater's Ray Dalio made "only" $480 million in 2019, down from $1.3 billion in 2018. His flagship Pure Alpha II fund lost money for the first time in two decades in 2019.
Tiger cubs like Lone Pine’s Stephen Mandel and Tiger Global’s Coleman were up more than 30% in their main funds.
“They all had good years because they tend to be net long,” Alaska’s Frampton said.
While that may be true, we can't wait to revisit these ranking when "net long" is no longer the fail-proof solution to all the world's problems.