In this piece, we will take a look at the 15 biggest hedge funds in the world by AUM. If you are short on time, you can skip our discussion and go straight to the 5 Biggest Hedge Funds in the World by AUM.
The hedge fund industry is the fast mover and fast player in the financial world, with traders often using a diverse set of strategies to target huge returns for their clients. These strategies are sometimes significantly riskier than the ones relied on by either investment banks or traditional asset management firms - but they come with the benefit of larger returns. Consequently, hedge funds have come to count themselves among some of the biggest entities in the world that have portfolios larger than the balance sheets of several central banks.
The size of a hedge fund, and that of asset management firms in general, is measured by Assets Under Management (AUM). This is equal to the total market value of all the assets managed by a fund if the fund isn't using any leverage, and it serves as a useful metric since most funds have a variety of portfolios that target different sectors for their investments. Some of the areas targeted include the stock market, the debt market, distressed securities, commodities, and foreign currencies. If the fund is using leverage, then the total value of all the assets owned by the fund may be several times larger than the capital handed over to the fund by its limited partners.
Some of the largest asset management firms in the world are also hedge funds, while none of the largest hedge funds are asset managers. While subtle, this differentiation is most evident in the comparison between BlackRock and Bridgewater Associates. The former has a whopping AUM of $10 trillion as of January 2022, but it is primarily an asset management company. In comparison, Bridgewater, which is a hedge fund, has an AUM of $126 billion.
Some of the strategies that are available to a hedge fund include long and short selling, being market neutral, and taking advantage of macroeconomic trends. Long selling refers to an investor buying shares or other items such as currencies with the belief that the value will appreciate. Short selling is different, and it involves borrowing an equity or another asset to sell and then buying again when the price drops. Once the borrowed amount is returned, the investor pockets the difference as a profit. Finally, macro trading deals with global economic trends (such as the recently rising U.S. dollar and oil prices) to make a profit. A market neutral strategy aims at the best of both long and short selling, with the fund picking out both to balance out the investment risk.
Looking at facts, the global hedge fund industry is doing quite well, even as markets were devastated by the coronavirus pandemic. Between the first and fourth quarters of 2021, the industry's total AUM grew by more than $1 trillion, as it topped $4 trillion for the first time in January 2022. As you'll see later in this piece, the distribution follows the Power Law, with the top funds accounting for most of the AUM. Some of these are Renaissance Technologies LLC, Berkshire Hathaway Inc. (NYSE:BRK-A) and Bridgewater Associates LP.
15 Biggest Hedge Funds in the World by AUM
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Our Methodology
We took a broad look at the hedge fund industry to pick out the most important and largest hedge funds in the World. These are ranked through their AUM at the end of June 2022 as reported by P&I. By the way, Insider Monkey tracks more than 900 equity hedge funds and shares their US equity portfolios on its website free of charge. You can track each of these hedge funds on our website and get free email alerts whenever they disclose a new position. P&I's "biggest hedge funds in the world" list contained some closed-end funds like Ruffer and excluded the world's biggest "secret" hedge fund
15 Biggest Hedge Funds in the World by AUM
15. Baupost
Latest AUM: $26.3 billion
Seth Klarman's Baupost Group is probably one of the most well-known value hedge funds in the world. Baupost was launched with a seed capital of $27 million in 1982. Klarman returned more than 20% annually during the first couple of decades of Baupost's existence, however, since 2010 Klarman was able to generate double digit returns only twice. Baupost returned nearly 15% in 2013 and low double-digit gains in 2021. When Insider Monkey subscribers making money hand over fist in 2020, Baupost investors made only 5%.
Baupost is a good example to show that biggest hedge funds aren't necessarily the best hedge funds. Investing was relatively very easy in the 80s, 90s, and first 00s. However, most of the big and famous hedge funds have been having trouble generating decent returns. Please keep in mind that these hedge funds were able to generate 20%, 30%, in some cases 40% average gains per year before the 2008 financial crisis. Not much since then. There are a few exceptions, and we will share those with you later in this article. Seth Klarman's Baupost isn't one of those exceptions. After becoming a billionaire his focus turned away from generating large returns to capital preservation. Around 30% of Baupost's portfolio is reportedly in cash. That's nearly $8 billion of Baupost's $26 billion. That means Baupost investors are paying a 1.25% management fee so that Seth Klarman holds their cash earning next to nothing. Klarman is getting paid just $100 million a year for holding cash. When you have a stellar reputation like Klarman, you can easily pull this off.
Don't get us wrong. Seth Klarman isn't alone. Bridgewater's Ray Dalio is among the most influential hedge fund managers in the world. He is richer than Klarman and his hedge fund's AUM is 5x of Baupost's. Yet, until the 2020 stock market collapse Bridgewater's flagship Pure Alpha Strategy returned 1% annually over the previous 10 years. Ray Dalio pretends that he "solved" the mysteries of how the "economic machine" works, yet his "Pure Alpha" strategy hardly generated any returns for over a decade. Things turned around for Bridgewater since the bottom of the 2020 crisis though. Bridgewater generated around 50% gains between April 2020 and April 2022. For the last 10 years ending April 15th Bridgewater's flagship Pure Alpha Strategy returned an annualized gain of 4.2%.
In any case, Seth Klarman will report his latest 13F portfolio holdings tomorrow. You can check out Seth Klarman's portfolio here.
14. Anchorage Capital Group, L.L.C.
Latest AUM: $27 billion
Anchorage Capital Group, L.L.C. is an American hedge fund that is headquartered in New York. The company focuses its efforts on investing in credit and illiquid markets. It uses both long and short strategies, alongside an emphasis on targeting leveraged issuers that are struggling with their debt repayments. This is a risky yet a highly profitable market.
Anchorage Capital Group, L.L.C.'s assets under management (AUM) are $27 billion. The fund was recently part of a group that restructured the lighting company Lumileds, which allowed Lumileds to improve its balance sheet and reduce debt by $1.4 billion.
Anchorage Capital Group, L.L.C. is one of the largest hedge funds in the world, alongside others such as Renaissance Technologies and Bridgewater Associates LP.
13. AQR Capital Management
Latest AUM: $28.2 billion
Cliff Asness' AQR Capital Management is an American hedge fund that was set up in 1998. The fund is known for using advanced quantitative methodologies to make investments, and its investment strategies are diversified as they balance out the four key investment strategies of investing in value, momentum, carry (or holding), and defensive stocks.
By the end of this year's second quarter, AQR Capital Management had $28.2 billion in AUM. The fund capitalized on the turmoil that hit the stock markets this year and decimated the share prices of well-known players. As of October 2022, one of AQR Capital Management's trend following funds was up by a whopping 70%. Through this, AQR Capital Management beat an index of the largest 10 trend following hedge funds.
12. Marshall Wace LLP
Latest AUM: $34.4 billion
Marshall Wace LLP is another British hedge fund. It is headquartered in London and was set up in 1997. The fund uses a mix of quantitative and fundamental strategies to make its investments.
As of June 2022, Marshall Wace LLP had a total AUM of $34.4 billion. It has six different investment teams, with each targeting quantitative, fundamental, quantamental, risk, sustainable investment, and general trading. Quantamental, as the name suggests, is a blend of financial fundamentals and quantitative trading. Marshall Wace LLP was also the first fund to pioneer the alpha capturing system, which lets hedge funds solicit market opinion to make investment decisions.
11. TCI Fund Management Limited
Latest AUM: $36.2 billion
TCI Fund Management Limited was set up by the billionaire hedge fund investor Chris Hohn in 2003. The fund has its origins in charity, as initially, it was contractually obligated to contribute to a charity that spends funds to aid children in developing countries. TCI Fund Management Limited is headquartered in London, United Kingdom.
TCI Fund Management Limited has a total AUM of $36.2 billion, and the fund invests in both real estate and equity. The fund primarily focuses on long term investments in equities, and it uses a mix of fundamental analysis, management profiling, and activism as its investment strategies. Its real estate division focuses on investments in North America and Europe. Its biggest US positions were Alphabet (GOOG) and Microsoft (MSFT) at the end of June.
10. Farallon Capital Management, L.L.C.
Latest AUM: $37.4 billion
Farallon Capital Management, L.L.C. is an American hedge fund that is also one of the oldest of its kind after being set up in 1986. It was founded by Thomas Steyer who had spent time at renowned firms such as Morgan Stanley and Goldman Sachs before starting his own hedge fund.
Farallon Capital Management, L.L.C. has total assets under management of $37.4 billion as of June 2022, and since being set up, the fund has developed credit and real estate strategies, expanded focus on illiquid firms, an early variant of the long/short strategy, and a negative screen for fossil fuels. Farallon Capital Management, L.L.C. has offices in London, Hong Kong, Singapore, Tokyo, and other cities.
Davidson Kempner Capital Management LP is an American hedge fund that was set up in 1989. The firm is headquartered in New York City, and the fund invests in credit, equity, and real assets. These include convertible arbitrage, merger arbitrage, private equity, real estate, aircraft, and shipping among others.
Davidson Kempner Capital Management LP AUM as of June 2022 was worth $37.5 billion. The firm has offices in seven different cities, with the latest office opening in Mumbai in 2022.
8. Two Sigma Investments LP
Latest AUM: $40.9 billion
Two Sigma Investments LP is a technology driven hedge fund that was founded by Josh Overdeck and David Siegel. The fund reflects its founders' technology background, with Mr. Siegel having a Ph.D. from the Massachusetts Institute of Technology. It employs artificial intelligence and machine learning for its trading strategies.
By the end of this year's first quarter, Two Sigma Investments LP AUM stood at $40.9 billion. It launched a new fund worth $518 million in October 2022. This fund is titled the Two Sigma Neptune Enhanced Fund, and it focuses on investing in macro strategies.
Two Sigma made a big bet on Meta Platforms during the second quarter. You can check out its latest portfolio here.
7. The D. E. Shaw group
Latest AUM: $47.8 billion
The D. E. Shaw group is another hedge fund that was set up in 1988 and is known for focusing on quantitative strategies for its investments. The firm is named after its founder David Elliot Shaw, who is a billionaire with a doctorate from the illustrious Stanford University. Dr. Shaw now directs his efforts on studying computational biochemistry.
The D. E. Shaw group has an AUM of $47.8 billion, and it uses a mix of quantitative and qualitative analysis to sift out companies in which to invest. It targets several different companies such as financial firms, renewable energy companies, and private equity investments. D.E. Shaw's Composite Fund returned 19.4% in 2020 and around 18.5% in 2021. The same fund also returned 20.5% in 2022 through August. These are very impressive returns for a big fund in both up and down markets.
Citadel LLC is an American hedge fund that is headquartered in Miami, Florida. The firm invests in markets all over the globe, in a variety of different markets.
Citadel LLC's assets under management stood at $52.9 billion as the second quarter of this year ended. This marked a strong 40% growth over the previous reading. The fund invests in equities, fixed income, macro, commodities, and credit. It employs quantitative strategies to generate returns. Citadel's flagship fund Wellington returned nearly 29% in 2022 through September. Wellington also returned 26% in 2021.
Citadel will be reporting its latest 13F portfolio on November 14th. You can see the entire portfolio here.
