A smaller but stronger hedge-fund industry has emerged from the financial crisis according to Barron’s annual Top 100 Hedge Fund ranking. Each of the 100 funds posted averaged annual returns of 10% or better for the past three tumultuous years. Since the financial crisis erupted in late 2008, an estimated 2,000 of them have gone out of business, taking their number down to about 9,000. Hedge-fund assets hit a trough of $1.33 trillion by the end of the first quarter of 2009, down from a mid-2008 peak of $1.93 trillion.
This year’s selection process has been particularly stringent for funds of hedge funds. Not only has their performance been sub-par: They've returned an annualized 8.2% over the past 20 years, versus 12.24% for single-manager hedge funds, according to fund-tracker Hedge Fund Research. As a result, their ranks have been thinned by about 20%, to 2,117 in the past two years; their assets have fallen by 29% to $570 billion.
John Paulson is this year’s winner. His Paulson Credit Opportunities Fund finished with a three-year compound annual return of 122.92%. Paulson, whose New York firm now runs more than $32 billion, also had two other funds in the Top 100, Paulson Advantage and Paulson International (up 20.23%).
In at No. 2 is Balestra Capital Partners, a global macro fund whose three-year compound annual return comes to 65.63%. After two stellar years in mostly down markets, the fund, run by James Melcher, didn't quite catch 2009's turnaround, gaining just 4.22%. Still, Melcher's three-year performance is impressive.
In third is mathematics Ph.D. and portfolio manager James Simons, who retired at the start of this year. His Medallion Fund, a computer-driven quantitative trading vehicle that's part of Renaissance Technologies, posted an average annual average increase of 62.80% for the three-year period.
Click here for video of author/compiler of the list Jack Willoughby discussing the rankings and the hedge fund industry in its current state.
The full ranking is available in the latest edition of Barron’s magazine (24th May 2010) which can be found in the newspaper area on the first floor of the library.