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Dalio takes hedge crown from Soros

©Bloomberg
Ray Dalio has overtaken George Soros as the world’s most successful hedge fund manager after his Bridgewater Pure Alpha fund made $13.8bn for investors last year.

The profits made by the Connecticut-based Pure Alpha – already the world’s biggest hedge fund, with $72bn under management using its trading strategy – beat its own record for the largest one-year dollar gain last year.

However, the ranking by LCH Investments, part of the Edmund de Rothschild group, also showed last year the biggest-ever loss by a hedge fund. John Paulson’s New York-based Paulson & Co lost investors $9.6bn last year, more than was lost in the collapse of Long Term Capital Management in 1998. But Mr Paulson is still ranked third for the best overall returns for investors, at $22.6bn.

LCH, which has been investing in hedge funds since 1969, assesses hedge funds by how much they have made over their lifetimes for investors in dollars. It argues that percentage returns distort performance as fund managers frequently find it hard to maintain big returns as they take in more money. This is important as investors tend to buy funds that have done very well but then those funds often produce mediocre returns on the larger amounts of money.

Mr Dalio, 62, has shot to prominence in the hedge fund industry after his widely circulated initial analysis of the crisis suggested that the world faced a deleveraging akin to the 1930s. He has built a large organisation catering mainly to pension funds and other institutional investors, investing according to a shared explanation of what he calls the “economic machine”.

This fundamental analysis gave Mr Dalio’s Pure Alpha a gain of 45 per cent in 2010, when it passed Mr Paulson’s $11.9bn record from 2007 for the biggest dollar gain in a year.

Six of the top 10 fund managers in LCH’s list are “macro” investors, focused on moves in interest rates, currencies and economies. This can work very well when the call is correct, as Mr Dalio demonstrated, but can also be painful: Mr Paulson’s funds lost an average of 20 per cent last year after wrongly betting on a recovery.

Rick Sopher, chairman of LCH, said: “Macro investing is notoriously difficult, but the best managers are able to find opportunities, especially in troubled markets.”

Hedge funds taken as a whole lost $123bn last year, LCH calculated. Its rankings exclude computer-driven funds such as Renaissance Technologies, or those with no central investment manager, such as DE Shaw.

Mr Soros’s return has been frozen as he no longer runs other people’s money.

The next six best performing hedge funds are: Brevan Howard, Appaloosa, Caxton Global, Moore Capital Management Partners, Farallon, and SAC.

Top Ten Absolute Return Fund Managers

By net gains (after fees) since inception to December 31 2011 Net gains ($bn) Strategy assets under management ($bn) Inception
Bridgewater Pure Alpha (3) 35.8 71.9 1975
Quantum Endowment Fund* (1) 31.2 22.2 1973
Paulson & Co (2) 22.6 22.6 1994
Baupost (4) 16.0 23.0 1983
Brevan Howard Fund (8) 15.7 26.5 2003
Appaloosa (5) 13.7 13.0 1993
Caxton Global* (6) 13.1 6.9 1983
Moore Capital Mgmnt (7) 12.7 14.0 1990
Farallon (9) 12.2 19.5 1987
SAC 12.2 13.2 1992

Source: LCH Investments ests; Manager data and annual reports; internal ests *Founding manager retired 2010 rankings in brackets


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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