It seems that 2016 was the year investors — and
everyone else — finally fell out of love with hedge
funds. Pundits raged against funds that charged high fees while
delivering mediocre performance; politicians, including both
presidential candidates, derided hedge funds on the campaign
trail; and some big pension plans pulled their money, declaring
they'd finally had enough.
As a result, blue-chip hedge fund managers who once turned
people away had to cut their famously high fees to keep the
investors they had. Even that didn't work: In 2016 hedge funds
faced their third-ever year of net redemptions, with outflows
of $70 billion, according to data tracker Hedge Fund
The bad times trickled down to this year's
Rich List. The 25 hedge fund managers who earned the most
money last year made a combined $11 billion. Although that
sounds like a lot, it's actually the lowest total since 2005,
when the top 25 earned just $9.4 billion. And it's only a
little more than half of what the top 25 managers earned just
three years ago, when they reaped a total of $21.2 billion.
Even in 2008, when the stock market and many hedge funds were
down by large-double-digit percentages, the highest earners
made more money as a group: $11.6 billion. To qualify for the
top 25 this year, managers needed to earn just $130 million,
the lowest floor since 2011, when a manager required $100
million to make the list. The average top earner made $440
million in 2016. The median earner made $250 million, the
lowest since 2011, when the median earner made $235 million.
Last year's comparatively lower numbers underscore the
dichotomy of the hedge fund industry in 2016. Though data
scorekeepers like HFR talked up the fact that the average hedge
fund had its best year since 2013, that does not accurately
portray what really happened on a fund-by-fund level.
Rather, there was a group of managers that enjoyed strong
double-digit gains last year. Many of them are represented on
Alpha's 16th annual Rich List. However, looking beyond
this top-performing group reveals that a significant proportion
of the largest hedge fund firms — those whose
principals are more likely to make the most money —
either suffered small losses or eked out low-single-digit
gains. These kind of results make it difficult for them to earn
meaningful sums on their own capital in the funds —
one of two key components Alpha uses to measure an
individual's annual personal earnings.
We also calculate managers' shares of their firms' fees, and
these illustrate why performance doesn't matter as much as it
used to. Many of the largest firms still generate huge revenues
from fees that far exceed their costs, allowing some managers
to qualify for the Rich List. Nearly half of the 25 highest
earners in 2016 posted single-digit gains in their main funds.
This explains why many of the top numbers are lower than usual
and why the minimum required to make the Second Team is "just"
Over the 16 years of the Rich List, hedge fund managers in
the ranking have made a total of $203.6 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.
Last year just two individuals cracked the billion-dollar
mark: James Simons of Renaissance Technologies headed the
ranking with $1.6 billion, followed by Raymond Dalio of
Bridgewater Associates, who earned $1.4 billion. The previous
year four people made more than $1 billion. Simons, whose two
main funds posted double-digit gains in 2016, is the only
individual to qualify for the Rich List in all of the 16 years
since we launched our ranking. Dalio, meanwhile, runs the
world's largest hedge fund firm, with about $160 billion in
total assets. Last year Bridgewater's Pure Alpha funds, which
account for a majority of the firm's hedge fund assets, were up
in the low single digits, while its risk parity fund, All
Weather, rose 11.6 percent.
After the top two earners, the ranking amounts drop
considerably: The third and fourth earners — Two Sigma
founders John Overdeck and David Siegel — each made
$750 million. Last year their Compass Fund rose by double
digits. Continuing a trend from the previous year,
quantitatively focused firms, so called because they mostly or
totally rely on computers to make their investment decisions,
were among the big winners in 2016. The four highest earners on
this year's ranking hail from quant firms.
Altogether 13 managers from last year's Rich List are among
the top 25 earners this year; several of them qualified even
though they posted their worst results in several years. They
include Kenneth Griffin of Citadel, the top earner in last
year's ranking, who slips to sixth place after his total
earnings fell by about 65 percent. In 2016, Citadel's main
multistrategy funds, Wellington and Kensington, rose a little
more than 5 percent, their smallest gain in eight years.
Of those who qualified for last year's top ranking but
missed out this year, four are from firms headed by so-called
Tiger Cubs that lost money on their long-short funds in 2016.
Chase Coleman of Tiger Global Management,
O. Andreas Halvorsen and
Daniel Sundheim of Viking Global Investors, and
Stephen Mandel Jr. of Lone Pine Capital. As a result, this
is the first time since 2010 that no one with ties to
Julian Robertson Jr.'s Tiger Management Corp. qualified for
the top 25 ranking. However, thanks to gains on his long-only
fund and fees in general, Mandel qualified for the Second Team
Three others who were on the main list last year slip to the
Second Team this year because they only posted low-single-digit
gains in key funds:
Joseph Edelman of Perceptive Advisors and
Paul Marshall and
Ian Wace of Marshall Wace.