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Two thousand twelve was the year of the fearless investor. Many hedge fund managers found themselves gob-smacked by a world fraught with macroeconomic concerns. The euro hovered on the verge of collapse as several European economies declined at once; China's economic growth slowed; and the U.S. teetered on the fiscal cliff. In short, it was not the most investor-friendly environment.
Yet, as our 12th annual Rich List ranking shows, it was not a time to run scared. Indeed, several of the top 25 earners — led by David Tepper of Appaloosa Management — largely ignored such macro fears and stayed bullish. Tepper headed a handful of managers, including Charles (Chase) Coleman III of Tiger Global Management, Leon Cooperman of Omega Advisors, Kenneth Griffin of Citadel and Daniel Loeb of Third Point, who were unfazed by ambient worries, elevating their firms' annual performance to the 20 to 30 percent level through deft moves and gutsy market calls.
They were amply rewarded. Collectively, the top 25 hedge fund managers raked in a total of $14.14 billion in 2012, according to analysis by Institutional Investor's Alpha. This is the lowest sum since 2008, when most of the wealthiest and largest hedge fund managers lost money and failed to qualify for the Rich List, but it was roughly in line with the 2011 total of $14.4 billion.
To qualify for the 2012 Rich List, a manager had to have earned at least $200 million, double the 2011 threshold. The 2012 median of $350 million is much higher than the $235 million median of 2011's top earners. Only 11 managers on the 2012 list qualified for the 2013 ranking. Just one, Discovery Capital Management's Robert Citrone, is making his debut appearance this year.
All told, four managers earned more than $1 billion apiece. Tepper, who failed to qualify in 2011, made $2.2 billion. Bridgewater Associates' Raymond Dalio finishes second, with $1.7 billion, after topping the 2011 ranking with $3.9 billion. SAC Capital Advisors' Steven Cohen comes in third, with $1.4 billion. Rounding out the Fab Four is Renaissance Technologies' James Simons, with $1.1 billion.
Five of the so-called Tiger Cubs, former protégés of Tiger Management Corp. founder Julian Robertson Jr., made the list. Besides Coleman, they include Stephen Mandel Jr. of Lone Pine Capital, Philippe Laffont of Coatue Management, Discovery's Citrone and O. Andreas Halvorsen of Viking Global Investors.
Among the winning strategies were credit-oriented hedge fund positions, as investors tapped riskier higher yields, and equities. Many of the top 25 benefited from the stock markets' 16 percent gain, especially those investing in Apple, Liberty Global, Priceline.com, TripAdvisor and Yahoo.
The Rich List tabulates gains on a manager's own capital held in his funds and on his share of fees. Two of the top 25 — Millennium Management's Israel (Izzy) Englander and Tudor Investment Corp.'s Paul Tudor Jones II — qualified for the 2012 ranking despite their firms' respective single-digit performance gains. They made the cut on the basis of the substantial sum of personal wealth invested in their funds.
Several of 2011's top earners dropped from the rolls. Carl Icahn, for example, returned all outside money to investors in 2011. Centaurus Energy's John Arnold retired, while Brevan Howard Asset Management co-founder Christopher Rokos left his firm in 2012 to start a family office.
Relative to 2011, when the average fund lost money, 2012 was a good year, with most funds rebounding, albeit not as much as the markets themselves. All in all, for these highest-ranking earners, it was a formidable year for risk but a bountiful time for returns.