The US50 (2008)

Introduction

PHILIPPE TEILHARD, NEWEDGE
Originally published in the September 2008 issue

Welcome to the first edition of The Hedge Fund Journal’s US50 published in association with Newedge. Much like its European and Asian predecessors, the Europe50 and the Asia25, the US50 is a listing of the fifty largest US single hedge fund managers ranked by assets under management as at 30th June 2008. This time The Hedge Fund Journal (THFJ) has turned its inquisitive eye on the hedge funds industry’s birthplace – the United States of America. It was in New York that Alfred Winslow Jones formed the first hedge fund. He applied the basic techniques associated with hedge funds today, namely leverage and short selling, to hedge out his risk, andhe avoided the Investment Company Act of 1940 by keeping below the 99 investors threshold. In his first year he made a 17.3% return on his US$100,000 seed investment.

Twenty years later the hedge fund structure had become far more popular; the likes of George Soros and Michael Steinhardt had initiated their own hedge funds and there were around 140 other nascent funds in existence. Now in 2008 hedge funds number in the thousands with global assets of around US$2.7 trillion and the biggest of them are located in the US.

The US holds the world’s largest and oldest hedge fund firms and with that the lion’s share of the global hedge fund assets. By way of illustration, the Connecticut-based firm, Viking Global Investors, sits at the bottom of the US50 with assets under management of US$9bn. A European firm managing that amount of money would have occupied fourteenth position at the time THFJ published the last edition of its Europe50, and an Asian firm managing that amount of money would have occupied first position at the time THFJ published the last edition of its Asia25. A sure sign of the difference in scale.

The firm occupying the top slot, JPMorgan Asset Management, has grown its assets in the last six months by just over US$3.5bn. This is a common theme amongst the top players in the US. Despite difficult market conditions the top firms have grown their assets significantly. Bridgewater Associates has held its position as the world’s second largest hedge fund manager and grown its asset base in the last six months by an astounding US$7bn, while D.E. Shaw Group and Paulson & Company have grown their AUM by US$5bn and US$6bn respectively, over the same period. However, where there is gain, there is pain. This has been a particularly turbulent year across the entire financial sector and hedge fund managers have not escaped unscathed. A lack of credit and weakening stock markets have hurt many firms. The most notable in the US50 is Atticus Capital. Tim Barakett’s activist fund’s concentrated positions in financials, notably NYSE Euronext and Deutsche Borse, have brought about an estimated loss of assets to the tune of US$6bn in this calendar year to bring their AUM to approximately US$14bn. Other big players who have felt the pinch are Goldman Sachs Asset Management and Renaissance Technologies Corporation, which lost US$2.3bn and US$3.8bn respectively.

However, it is important to note two factors. First, that in general, the hedge fund industry has largely mitigated its losses. Other parts of the asset management industry have suffered far more at the hands of the markets in the same space of time. Second, the losses of hedge funds are exacerbated by redemptions. Investors, displeased with underperformance can, and do, pull out their cash causing AUM figures to plummet. So a drop in assets is not necessarily a fair representation of a manager’s investment performance.

Geographically, US hedge funds are predominantly based in New York, the financial powerhouse of the US. NYC is home to firms managing US$509.8bn which equates to just over 59% of the aggregate AUM of the US50 firms. The next largest gatherings are in Greenwich, Connecticut and Boston, Massachusetts, which when combined account for a further 13.6% (US$117bn) of the aggregate AUM of the US50 firms. There are entrants in the US50 from the West Coast. Farallon Capital Management (US$33bn), the San Francisco-based manager, occupies sixth position, whilst in twenty-fifth position sits Californian firm, Canyon Capital Advisors (US$14.265bn), based in Beverley Hills. However, it will be clear to the reader that the epicentre for hedge funds in the USA remains the financial powerhouses of the North East.

Firms just failing to make the cut include Silver Point Capital (position fifty-one) with approximately US$8.7bn, Glenview Capital Management (US$8.5bn) and Cantillon Capital Management (US$8.394bn).

As with previous rankings THFJ has sourced information directly from managers, where possible. In cases where firms did not wish to reveal information THFJ has had to create an estimate through information gathered from independent sources. Estimated figures are noted (est.) in the ranking.

As many of THFJ’s readers will be aware, the legal framework in the US is far more stringent for hedge funds in terms of what information they can and cannot provide. US hedge funds are under the Security and Exchange Commission’s microscope and many of the managers contacted were very concerned not to do anything that could be construed as solicitation, so whilst firms were prepared, on the whole, to share their AUM figures with THFJ, they were far more reluctant to provide information on fund names, strategies and portfolio managers. THFJ has sourced this information, where provided, from other sources.

The hedge fund giants in the US have often been the industry’s trailblazers. Names like Steinhardt, Soros, Tudor-Jones and Robertson were the first to push back the boundaries and increase the visibility of the industry and in their footsteps came the likes of Griffin, Paulson, Mindich and Och. The US industry has witnessed considerable growth in recent years. But the growth in assets managed by the big US firms over the course of the first half of 2008 has been exceptional given the challenging market conditions. As at 30 June 2008 the firms that make up the US50 managed in aggregate US$859.9bn. At the beginning of 2008 that aggregate figure stood at US$818.3bn. A growth of US$40bn in just six months is a testament not only to the ability of these managers but also an indication of a ‘flight to quality’ of the type we are seeing elsewhere in the industry.

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