Hedge funds are the top choice for wealthy investors, due to their approach that can generate above-average gains. The highest concentration of both investors and hedge funds is in the United States. About 65% of all hedge funds are registered in the US, and they are managing over $4 trillion in assets. The sheer size of the market made a topic - biggest hedge funds in the US, an interesting one, because it can answer the question of who is managing the majority of the hedge fund capital.
When talking about the biggest funds, the first thing to do is to set the criteria. The largest hedge funds can be characterized by their influence, gains, performances, or the size of assets under management. We decided to look at the managed capital because it is a clear sign of the size of the fund. By that standard, the largest funds in the US are Bridgewater Associates, Renaissance Technologies, and AQR Capital Management.
We will take a look at the ten largest hedge funds located in the United States, and go over their fundamentals. Fundamentals include assets under management, investment strategies they are using, how long are funds operating, and who is managing them. Besides this information, we will try to provide any interesting insights regarding them, which can help to understand how they managed to become so large in the first place.
Key Takeaways
- The majority of the world's hedge fund industry is based in the United States.
- Hedge funds are investment vehicles that provide investment opportunities to accredited investors.
- Large hedge funds have a long-standing reputation and track record, allowing them to attract both individual clients and a wide array of institutional clients like charitable foundations, and pension funds.
Top 10 Hedge Fund List
Bridgewater Associates - $124,317 billion AUM
An industry veteran Ray Dalio stands behind this hedge fund giant which was founded in 1975. Not only is Bridgewater managing the largest capital in the hedge fund industry, but Dalio can be attributed with a significant personal wealth reaching $19 billion.
Their pinnacle fund "Pure Alpha" is focused on macro strategy predicting large-scale trends like changes in interest rates, currency fluctuations, and inflation. Their second-in-line fund, the "All Weather Fund" follows a risk parity strategy with a long-term investment horizon.
Dalio is known for his embrace of high transparency in operations which is not that common among hedge funds.
Renaissance Technologies - $106,026 billion AUM
Renaissance is a hedge fund with a long tradition dating back to 1982 when it was founded by another big player in the industry, Jim Simons. He brought a revolution into a hedge fund playground, by bringing advanced mathematical and statistical methods into works.
Simons practically singlehandedly created a trend that is still very popular - quantitative trading. As a former codebreaker and mathematician, he saw a way to identify patterns and execute trades by using math and statistics.
The flagship fund, Medallion has steadily outperformed the market delivering 39% annual gains after fees, in a period between 1988 and 2018. These performances put Renaissance Technologies into the top-tier fund group.
While most hedge funds employ specialists with economic backgrounds, Simons is looking for perspective mathematicians to best utilize his investment strategies.
Unlike Bridgewater Associates Renaissance cannot brag about their transparency. On the contrary, they are known for their secrecy in both their investment process and the generated gains.
AQR Capital Management - $94,523 billion AUM
Founded by four ex-Goldman Sachs employees Cliff Asness, David Kabiller, John Liew, and Robert Krail in 1998 AQR Capital Management is one of the best-known quantitative asset management firms. Their strategy is focused on identifying opportunities across asset classes by analyzing historical data, market trends, and risk factors.
AQR is one of the creators of factor investing which relies on elements including value, momentum, size, and profitability to explain and predict returns. They employ a wide range of investment strategies and have expertise in various asset classes.
One of the founders, Cliff Asness is one of the most influential names in quantitative finance regularly writing on topics like factor investing, asset pricing, and market behavior.
Like most quant funds, AQR also went through periods of underperformance that are expected in times when the market does not favor factor-based approaches, or quant strategies in general.
Two Sigma - $67,471 billion AUM
Founded by David Siegel and John Overdeck in 2001 Two Sigma is one of the heavyweights in the quant industry. The fund uses techniques similar to those of other quant funds to predict market movements, like employing large datasets, complex machine learning approaches, and even advanced AI.
The fund relies on several strategies, including global fixed income, equities, commodities, and alternative investments to diversify its portfolio.
Unlike AQR, they do not solely focus on tech and math but also rely on finance and economic indicators to create their strategies. Two Sigma hedge fund managers come from different educational and professional backgrounds bringing various points of view to the table.
Millennium Management - $57,670 billion AUM
Millennium Management is a global multi-strategy hedge fund founded by Israel Englander in 1989. Based in New York City Millennium runs several investment strategies at the same time, including equities, fixed income, commodities, credit, and equity arbitrage. Opting for a diverse investment approach the fund aims to minimize the potential risks that can reflect on a single approach.
The fund works as a decentralized structure, with portfolio managers having wide autonomy in making investment decisions. Every manager has a specific strategy or an asset class he sticks with allowing the fund to create highly diverse portfolios.
One of the cornerstones of Millennium Management's success is its hiring process. They are known for attracting and hiring top talent from various backgrounds including finance, math, and tech.
The company as a whole prefers to manage a low volatility portfolio that comes with both lower gains and risks, but that can be counted on a long investment horizon.
Citadel Advisors - $51,573 billion AUM
Citadel is another multi-strategy hedge fund and is based in Chicago. It was founded in 1990 by another well-known name in the industry - Kenneth Griffin. The fund operates globally employing diverse strategies and cutting edge technologies.
Some of the strategies they use are quantitative trading, fixed income, commodities, and equities. Citadel Securities is a separate branch of the fund that is focused on quantitative trading which employs advanced algorithms and state of the art in data sciences to execute trades.
While portfolio managers have the autonomy to choose strategies and asset classes, they are still under the unified umbrella of robust risk management oversight. Their risk management sector monitors holdings in real-time, and they do not wait too long to lose underperforming players.
Tiger Global Management - $51 billion AUM
One of the best-known phenomenons in the hedge fund industry is the Tiger Cub group of hedge fund managers that emerged under the guidance of the prime Tiger Chase Coleman, who founded Tiger Global.
In its almost quarter of the century-long operation Tiger Global had its ups and downs but it is known as one of the largest names in the industry. Their key point of interest is investing in public equity and specifically tech-oriented firms.
To generate the highest gains the fund relies on a long/short strategy, generating gains from both ends of the market. Besides investing in public equity, the company is known for its bets on venture capital and late-stage start-ups.
When choosing investment targets, Coleman prefers tech companies that have the potential for market disruption. Besides investing in the United States, Tiger Global often buys into China and Indian markets.
D.E. Shaw - $45,772 billion AUM
A pioneer in the use of computational finance D.E. Shaw is one of the biggest names in not only the quant market but in the whole hedge fund world. The firm was founded in 1988 by David E. Shaw and it utilizes mathematical models, advanced computing techniques, and analysis of large datasets to make investment decisions.
The company is known for exploiting market inefficiencies that come from price discrepancies and market anomalies. D.E. Shaw utilizes a multi-strategy model with long/short equity, global macro, fixed income, and private equity being just some elements of their arsenal.
Their mathematical models generated major success in risk arbitrage and systematic trading strategies. The firm trades on different investment horizons, from long, to high-frequency trades that are characterized by its often very short span.
D.E. Shaw is known for its collaborative culture where finance and math experts work together to create the best investment thesis and risk-mitigating strategies. As a result of this approach, this company has a constant good track record of positive gains.
Coatue Management - $42,338 billion AUM
Founded by one of the Tiger Cubs, Phillipe Laffont, Coatue Management is a technology-focused hedge fund with a tradition dating back to 1999. The fund invests in both private and public companies, with the only preference being that they come from the tech sector.
Laffont is always in search of companies with market disruption capabilities, and with a lot of innovative power. The investment targets can be early-stage firms or large established companies. Currently, their focus is on AI, and all stages of its implementation.
Their core strategy is long/short equity, while also relying on its private equity arm and venture capital sector.
Laffont is always widening his professional network with being one of the most influential names in Silicon Valley. His deep understanding of the tech industry allows him to spot good investment targets early on, allowing him to make prime gains.
Davison Kempner - $40,800 billion AUM
Davison Kempner is a fund with an impressive tradition of more than four decades. In a high-risk business like hedge funds surviving this long is a feat of its own. The company also managed to deliver risk-adjusted and solid returns with a strong track record.
Davison Kempner's primary strategies include investing in distressed securities, event-driven investing, merger arbitrage, and special situations (spin-offs, mergers, acquisitions, bankruptcies).
Marvin Davidson shaped the current firm's philosophy which focuses on making opportunistic and event-driven bets. One of the company's cornerstones is its disciplined approach to risk management which carefully monitors risks, and adjusts exposure based on conditions on the market.
The firm's operations are based all over the world, making bets in North America, Europe, and Asia. The biggest issue with their strategy is dependence on corporate events which can face challenges during low deal activity or market uncertainty.