Hedge funds: Still making a killing
independent.co.uk
Parts of the hedge fund sector may have suffered during the credit crunch, but it is business as usual for the industry's big names, who earned staggering sums again last year. Mathieu Robbins reports
Thursday, 26 March 2009
James Simons, Renaissance Technologies; 2008 earnings: $2.5bn
Jim Simons, based in New York state, was the best-paid manager in hedge fund land last year, according to Alpha magazine's annual ranking of the world's highest earners in the industry. Mr Simons bagged himself a whopping $2.5bn (£1.71bn) through his Renaissance Technologies fund management company.
With markets crashing and banks imploding across the world, his flagship Medallion fund – which has, since 2002, been limited to investments from his own employees – generated an 80 per cent return last year. Mr Simons, 70, is a chain-smoking, award-winning mathematician, whose trading strategy relies on computer programmes designed by an army of more than 100 PhD graduates. His high personal earnings are partly due to the terms he levies on clients: a 5 per cent management fee – large for the industry – as well as a 44 per cent performance charge.
The value of Mr Simons' share of the profit means Medallion, which has about $7bn in assets – was up almost 160 per cent before the fees were taken. But even Mr Simons is not immune to that bane of hedge funds at the moment – redemptions by investors. Renaissance started this year with about $20bn of assets, down from about $25bn at the end of 2008.
John Paulson, Paulson & Co; $2bn
John Paulson is widely known for cashing in on the fall on banking shares in the past year. The fund he founded in 1994 has made more than £300m shorting shares in banks such as Lloyds and can boast the former US Federal Reserve chairman Alan Greenspan on its advisory board.
Mr Paulson, 53, formerly an M&A banker at now-defunct Bear Stearns, is among the 100 richest Americans listed by Forbes magazine. And the $2bn he raked in last year from bets on the credit crunch will hardly undermine his rich-list ranking or status.
John Arnold, Centaurus Energy; $1.5bn
As they can bet on assets rising in price as well as losing value, hedge funds thrive on one thing more than any other – volatility.
Having first learned the ropes at the infamous Houston-based trading company Enron, John Arnold, who is still only aged 34, specialises in energy trading, where the spectacular rise and fall of oil prices last year provided speculators with a string of opportunities for huge gains. Enter Mr Arnold, whose Centaurus Energy, also in Houston, managed to generate 80 per cent returns in 2008, enabling its founder to earn $1.5bn.
George Soros
soros fund management $1.1 billion
Needing few introductions, 78-year-old George Soros is yet again among the hedge-fund industry's top earners – and yet again one of his successful plays last year was a bet against Britain, reminiscent of his uncanny premonition about Black Wednesday in 1992.
This time, Mr Soros made a good part of his $1.1bn by gambling that UK interest rates would fall – an inspired investment decision because most people last summer expected them to go up.
Raymond Dalio
bridgewater associates $780m
Raymond Dalio is the first hedge fund man in these rankings to have made less than $1bn last year, claiming a measly $780m, mostly from currency fluctuations, having correctly bet on the rise of the Japanese yen.
While the struggling Japanese economy may not be grateful for the rise, which has killed exports, Mr Dalio cashed in. He has since told clients it is "well within the realm of possibilities", for 2009 and 2010 to be as bad as 2008.
Bruce Kovner, Caxton Associates; $640m
Bruce Kovner's firm, Caxton Associates, achieved a 13 per cent return for 2008 on its $4.3bn Caxton Global Investments fund after he took his 30 per cent performance fee, earning him $640m.
Mr Kovner, 64, is far from a lifelong financier, having worked in roles ranging from New York taxi driver to harpsichord player. He also enjoyed a stint as a consultant to the Republican Party. In 1977, he used $3,000 to try his hand at commodities trading and clearly had a talent for it, going on to found Caxton in 1983 with $13m.
David Shaw, DE Shaw & Co; $275m
The former science professor David Shaw founded DE Shaw in 1988. The hedge fund is one of the world's largest and has 1,700 employees.
Mr Shaw made $275m last year. After handing over the running of the fund in 2002, he now spends more time at DE Shaw Research. His team of scientists has built a supercomputer for molecular simulations.
Stanley Druckenmiller, Duquesne Capital Management; $260m
Stanley Druckenmiller, 55, was once George Soros's chief investment officer, a post he held from 1989 to 2000. Since then, he has very successfully struck out alone and is now one of America's richest men. He slashed his US stock market holdings last year, while investing heavily in the dollar, profiting from its rebound. Mr Duquesne's profits earned him $260m.
David Harding, Winton Capital Management; $250m
The only London-based manager to have made the top 10 hedge-fund earners, David Harding made $250m for himself last year.
Futures trading, which involves anticipating and, even more importantly, timing the direction of the markets – is what enabled him to rake in the cash at Winton Capital Management, based in Kensington.
John Taylor Jr, FX concepts; $250m
Currency trader John Taylor Jr is, at 65, head of New York-based FX Concepts.
He made his $250m by gambling on falling interest rates, as well as short selling the currencies of emerging markets including Russia.
Mr Taylor founded FX in 1981 as a currency forecaster, and it started taking clients' funds in 1988. |
