At a conference a year ago,
David Siegel, co-chairman of quantitative hedge fund
Two Sigma and an artificial-intelligence expert, predicted
that computer-driven managers will one day rule the markets.
"The challenge facing the investment world is that the human
mind has not become any better than it was 100 years ago, and
it's very hard for someone using traditional methods to juggle
all the information of the global economy in their head," he
said. "Eventually, the time will come that no human investment
manager will be able to beat the computer."
Apparently, Siegel's future has already become a reality.
This year about half of the 25 highest-earning hedge fund
managers topping Alpha's 15th annual Rich List used
computer-generated investing strategies to produce all or
some of their investment gains. They include Siegel and
John Overdeck, his Two Sigma co-chairman and co-founder,
who qualify for the Rich List for the first time. They tie for
seventh place after earning $500 million each last year.
In fact, six of the top eight on this year's ranking are
considered to be full-fledged quants: managers who rely heavily
on sophisticated computer programs as part of their process.
This is a far cry from 2002, when just two computer-driven
managers qualified for the initial ranking, including
Renaissance Technologies founder
James Simons, the only person to appear all 15 years.
This year Simons shares the top spot with
Kenneth Griffin, who has invested huge sums over the years
in what he touts as a state-of-the-art computer system. They
each earned $1.7 billion in 2015 after posting roughly midteens
gains in their main hedge funds.
Raymond Dalio, who also strongly relies on computers for
making investment decisions, is tied for No. 3 with
David Tepper, the most successful hedge fund manager of all
time among those who don't depend on computers.
The other quant to rank among the top eight earners is No. 6
David Shaw, a onetime Columbia University computer science
professor and founder of
D.E. Shaw Group, where Overdeck and Siegel worked before
launching Two Sigma.
Wedged into fifth place is
Israel (Izzy) Englander, founder of multistrategy giant
Millennium Management, who earned $1.15 billion. Englander
is one of five individuals on the Rich List who earned
ten-figure paychecks last year. Altogether the top 25 earners
made a combined $12.94 billion in 2015. This is up about 11
percent from the previous year but down substantially from the
record $25.3 billion the Rich List managers earned in 2009, in
the wake of the financial crisis.
To calculate an individual's earnings, Alpha counts
gains on individuals' capital in their funds as well as their
share of the fees. The median earner in 2015 made $275
million - the lowest median in five years - while the
average top earner made $517.6 million, up from last year but
down nearly 40 percent from $846 million two years earlier. To
qualify for this year's top 25, a manager had to earn at least
$135 million. This is the lowest minimum since 2011, when it
took a mere $100 million in earnings to make the cut.
Over the 15 years of the Rich List, hedge fund managers on
the ranking have made a total of $192.5 billion. This includes
30 people who were ranked in the first year, when a manager
needed to earn just $20 million to appear, and 26 people in
2005 because of a tie for 25th place.
In 2015 six of the 25 managers qualified for the Rich List
for the first time. In addition to Overdeck and Siegel, they
Joseph Edelman of Perceptive Advisors, who made $300
million after his health care-oriented Perceptive Life Sciences
Fund posted a 51.8 percent gain last year, and macro specialist
Jeffrey Talpins of Element Capital Management, who earned
$225 million after generating a 22.7 percent gain in his
flagship fund, mostly from successful bets on the U.S. Treasury
Paul Marshall and
Ian Wace, who founded
Marshall Wace, make their debut after earning $145 million
each from both quantitative- and qualitative-oriented
In a year when roughly half of all hedge funds lost money, a
number of frequent Rich List members are conspicuously missing
from the ranking because their funds finished in the red. They
John Paulson of Paulson & Co.,
Leon Cooperman of Omega Advisors,
James Dinan of York Capital Management and
Daniel Loeb of Third Point.
But losing money did not stop everyone from ranking among
the top 25. Five managers qualified this year even though at
least one of their funds fell in 2015. That group includes
Michael Platt of
BlueCrest Capital Management,
Daniel Och of
Och-Ziff Capital Management Group and the three top guys at
Bridgewater - Dalio,
Greg Jensen and
Robert Prince - whose All Weather Fund lost 7 percent
even though their firm's larger funds made money.
Several Rich List regulars did not qualify for the main list
but nonetheless were in the black last year. However, their
gains were small or they were still below their high-water
marks from earlier losses, so they wound up on the
Second Team. They include
Paul Tudor Jones II of
Tudor Investment Corp., John Griffin of
Blue Ridge Capital and O. Francis Biondi Jr. and Brian
King Street Capital Management.