Photo: Wikimedia Commons
Several publications try to rank hedge funds based on their one year or three year performance. These criteria aren’t sufficient to determine which hedge funds truly deserve to have the top rankings. They employ some filters to eliminate outlier hedge funds that don’t really belong to the list.For instance, funds with less than a couple of hundreds of millions of dollars are excluded. Only hedge fund managers with stellar reputations can amass huge funds, so this criterion seems to weed out some “lucky” hedge funds. Another criterion is at least a three year track record that is reported to hedge fund databases.
This seems like a good idea, but the problem with this criterion is that it also excludes several successful hedge funds that don’t have any desire to gather more funds or to garner any interest.
The result of employing these techniques is that in some cases, hedge funds with large enough assets and a relatively long track record might make the list if they have a one successful year.
John Paulson has a solution. Paulson thinks the best way to rank hedge funds is to rank them based on the total net gains of their clients over the life of the hedge fund.
Really successful hedge fund managers will attract a lot of capital and achieve high returns even when they have a huge size.
“LCH Investments NV independently did a study of hedge funds that have produced the greatest net gains for investors since inception. We are proud that we are number three on the list with over 26 billion in net gains, even though we started our funds 12 and 21 years after Renaissance and Quantum, respectively,” said Paulson.
Here are the top 10 funds with the greatest net gains for investors:
1. George Soros‘ Quantum Endowment Fund (1973): Net Gains of $32 Billion
2. Renaissance Medallion Fund (1982): Net Gains of $28 Billion
3. Paulson & Co (1994): Net Gains of $26.4 Billion
4. Moore Capital (1989): $17.5 Billion
5. ESL (1988): $15.3 Billion
6. Bridgewater Pure Alpha Fund (1991): $13.3 Billion
7. Caxton (1983): $12.8 Billion
8. Baupost (1982): $12.5 Billion
9. Brevan Howard Fund (2002): $12.5 Billion
10. SAC (1982): $11 Billion
Source: LCH Investments NV (as of June 30, 2010)