Via Financial Times

The top 20 best-performing hedge fund managers of all time made $59.3bn for their investors last year, their biggest annual gains in at least a decade, as hedge funds took advantage of a strong tailwind in stock and bond markets.

These managers, led by Christopher Hohn’s TCI and Steve Mandel’s Lone Pine, made about one-third of the $178bn of total gains bagged by the hedge fund industry in 2019, according to research by LCH Investments. LCH is a fund of hedge funds run by the Edmond de Rothschild group, which tracks the dollar gains made by managers.

While the gains are large in dollar terms, hedge funds have lagged behind equities in recent years. For example last year while funds recorded their best performance in a decade, with gains of 10.4 per cent on average, according to data group HFR, that was still well behind the S&P 500’s 31.5 per cent return.

Rick Sopher, LCH’s chairman, described last year’s gains for the hedge fund industry as “a significant improvement after several years of muted returns”. In 2018 the industry lost $41bn in aggregate for investors, even though the top 20 managers still made gains. “The ‘hedged’ nature of hedge funds has resulted in them lagging way behind the returns of the equity markets in particular,” he added.

When equity markets fell in 2018 — seen as a test of managers’ professed ability to protect investors’ money in all climates — the average hedge fund lost 4.8 per cent, slightly underperforming the market.

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Managers who did best last year were those positioned to benefit from rising stock prices. London-based TCI, which manages around $30bn in assets, made $8.4bn for investors in 2019, which was enough to put it back in the top 20 managers of all time after an absence in 2018, according to LCH.

Mr Mandel’s Lone Pine, meanwhile, recovered from a difficult year in 2018 to post a $7.3bn gain. The firm’s $33.2bn total gains since launch rank it fourth overall, up from seventh. London-based Egerton Capital, run by John Armitage, was also long equities and made $5bn for investors last year, helping it regain its place in the top 20.

Although Ray Dalio’s Bridgewater Associates had a lacklustre year, it retained its top spot in the overall ranking of all time with $58.5bn of gains since it launched in 1975. Gains of just $600m in 2019 for Bridgewater’s investors were close to the lowest posted by the top 20 managers last year. The firm manages about $160bn in assets and its flagship Pure Alpha fund ended 2019 almost flat, having lost money earlier in the year betting on higher bond yields. This followed gains of 14.6 per cent in 2018.

Dropping out of the top 20 were global macro manager Caxton Associates, despite double-digit gains last year, and Two Sigma, a systematic investment manager.

Louis Bacon’s Moore Capital, which in November told investors it was closing its flagship hedge funds to external money, slipped to 19th place from 15th in 2018, as $300m of gains last year took its total to around $19bn.

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Despite a return to form for the wider hedge fund industry last year, some big names were wrongfooted by the electoral defeat of Argentina’s president Mauricio Macri. Crispin Odey’s Odey European fund posted losses for the year after the country’s stock market tumbled and its currency plunged against the dollar, as did emerging markets specialists Autonomy Capital and Glen Point Capital.

LCH also for the first time tried to calculate how much the top 20 managers gave to philanthropic causes and charity. It estimated that they had made combined donations or commitments of $62.5bn, equating to around 45 per cent of the total performance fees that their firms have earned since launch.

laurence.fletcher@ft.com