Share price surge helps largest hedge funds to biggest profits on record

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The world’s most successful hedge funds made their biggest profits on record last year as punchy bets on stock markets paid off when share prices surged.

The top 20 managers made profits for investors of $67bn in 2023 according to research by LCH Investments — up from the previous record of $65bn in 2021.

This performance cemented their dominance over the rest of the industry — the 20 hedge funds which have performed best since their inception manage 19 per cent of assets but they made around a third of annual profits last year, in dollar terms.

The LCH list calculates which managers in the $4tn hedge fund-industry are most successful based on the cumulative dollar profits they have made for investors, net of fees, since inception. LCH has been tracking the top 20 hedge funds since 2012.

Standout performers last year included Sir Christopher Hohn’s TCI, Ken Griffin’s Citadel and Andreas Halvorsen’s Viking.

Brad Amiee, director and head of research at LCH Investments, said the stock market’s strong performance was a contributory factor for some of the biggest funds.

“Equities have been on a fantastic run,” he said.

That performance has continued into this year: the S&P 500 index of leading shares hit an all-time high on Friday, driven by strong gains for the largest technology companies.

TCI made $12.9bn for investors and ended last year up 33 per cent, ahead of the S&P 500 index’s 24 per cent rise. Its largest holdings included Alphabet, Canadian National Railway, Visa, General Electric and rating agency Moody’s as at the end of September, according to a regulatory filing.

Citadel made $8.1bn in profits last year after bringing in a record-breaking $16bn in 2022. Its performance since its inception makes it the most successful hedge fund in history.

Halvorsen’s Viking made $6bn last year.

US billionaire Bill Ackman’s hedge fund Pershing Square rejoined the top 20 hedge funds after leaving the rankings in 2015. It was up 27 per cent in 2023, making $3.5bn.

TCI and Pershing Square benefited in particular by making narrowly concentrated bets that particular stocks would go up.  

“You could argue that, since shorting is such a challenging sub-strategy, keeping things long-biased and having a concentrated position in high quality positions has been the way to go,” Amiee said.

Some multi-strategy firms, which trade a range of strategies, also performed well — including Citadel.

Millennium and DE Shaw, which are also multi-strategy firms, took joint second place in the all-time rankings, making $5.7bn and $4.2bn last year respectively.

“The persistence in profitmaking of the big multi-strategy firms over the last few years has been a remarkable trend,” said Rick Sopher, chief executive of Edmond de Rothschild Capital and chair of LCH Investments.

Bridgewater, which in 2022 lost its place at the top of the all-time rankings to Citadel, fell a further two places to fourth, losing $2.6bn. Last year it capped investments in its flagship vehicle and cut about eight per cent of its workforce in a shake-up after its founder Ray Dalio ceded control of the firm.

TCI and Pershing Square are the youngest funds on the list, competing with older firms such as Millennium and Citadel, which were founded in 1989 and 1990 respectively.

The research found that the top 20 managers had created $755.4bn in profits since they were set up — more than the $655.5bn in assets they are currently managing. The figures suggest that top managers prioritise careful deployment of investors’ capital, rather than making the fund as large as possible.