The 10 Largest Hedge Funds in America

By now, most investors know that the large hedge funds are run by billionaires rather than millionaires. What many investors might not know is that some hedge funds are reaching the size of large mutual fund families. They have become enormous. To give an idea of their size, the bottom two hedge funds among the top 10 in the U.S. alone have nearly $20 billion in assets under management each.

Read The 10 Largest Hedge Funds in America

What is even more amazing than the funds’ individual size is the size of the hedge fund world. In the U.S., funds that had $1 billion or more in assets cumulatively had assets under management of more than $1.3 trillion. Well over $1 trillion of those assets tracked were distributed in New York, Connecticut and Massachusetts.

The industry may be huge, but it is not stable. That’s because so many funds take such outsized risk to grow more rapidly than their competitors. Thousands of funds closed in 2008 after the fall of Lehman Bros. In what was probably the worst quarter in the industry’s history, Hedge Fund Research reported that 700 U.S. funds closed in the third quarter of that year. The funds not only lost money on investment, but also could not repay loans taken from banks that gave them leverage to help increase their asset bases.

The surge in the stock market and improvement in the economy lifted the hedge fund industry back toward record levels last year. According to HFR, the number of new funds rose to 1,113 last year from 935 in 2010, the most since 2007 when 1,197 were counted. Obviously, the success of the business is based to a large extent on the health of the economy, although some of the funds on this list have done well enough to defy that lesson.

A recent report from Absolute Return lists U.S. hedge funds according to their assets under management as of January 2012. A look at the top 10 hedge funds reveals several rather well-known names, but also shines a light on several completely unknown ones.

24/7 Wall St. examined the top 10 hedge funds and outlined their respective units. We also provided the funds’ investment strategies and included some of their top holdings if available.

10. Farallon Capital Management
> Assets under management: $19.2 billion
> Year founded: 1986
> Location: San Francisco

Farallon is the sole member of the top 10 U.S. hedge funds not on the East Coast. The fund group was founded in 1986 by Thomas Steyer, and it claims roughly 165 employees located throughout six offices around the globe. Its investing strategies include investments in public and private debt and equity securities. It also makes direct investments in private companies, merger arbitrage and real estate. The company’s top holdings were in El Paso Corp. (NYSE: EP), Goodrich Corp. (NYSE: GR) and Motorola Mobility Holdings Inc. (NYSE: MMI), with stakes of around $400 million each. The firm’s full holdings are here.

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9. Elliott Management Corporation
> Assets under management: $19.2 billion
> Year founded: 1977
> Location: New York

Elliott Management was founded by Paul Singer, who recent called for new global leadership in a DealBook report. The firm has been a Lehman creditor and often is mentioned as a creditor in articles about credit default swaps regarding Greece, voting to have lists published. Full holdings are here, including a stake worth over $500 million in Delphi Automotive PLC (NYSE: DLPH).

8. Renaissance Technologies
> Assets under management: $20.0 billion
> Year founded: 1982
> Location: East Setauket, N.Y.

Renaissance was listed in the Absolute Return report with more assets than the fund itself claims, but that is said to include the Medallion fund. The hedge fund outfit employs 275 people and sticks to mathematical and statistical methods. Apple Inc. (NASDAQ: AAPL) has been one of its huge performers. Its stake in the company was over $500 million at the end of 2011 — about five times as large as its other top holdings. Other top holdings were Chipotle Mexican Grill Inc. (NYSE: CMG), Intel Corp. (NASDAQ: INTC), Eli Lilly & Co. (NYSE: LLY) and McDonald’s Corp. (NYSE: MCD). Full holdings here.

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7. Angelo, Gordon & Co.
> Assets under management: $21.2 billion
> Year founded: 1988
> Location: New York

Angelo, Gordon was founded in 1988 and claims more than 230 employees with its affiliates. The hedge fund seeks to generate absolute returns. The strategy is said to be have low volatility, exploiting inefficiencies in selected markets and capitalizing on situations that are not in the mainstream of investment opportunities. The strategies highlighted the most by the firm are fixed-income assets, followed by real estate, private equity and multistrategy.

6. Paulson & Co.
> Assets under management: $22.6 billion
> Year founded: 1994
> Location: New York

Paulson & Co. was founded by John Paulson in 1994. The hedge fund manages domestic and offshore merger arbitrage/event-driven funds for institutional and high net-worth clients across multiple hedge funds under the “Advantage” name. Last year was not a good year, but Paulson was a winner of the recession and that has allowed his funds to maintain clients. Paulson often takes large stakes. He was one of the largest holders of Bank of America Corporation (NYSE: BAC) and has a large position in the SPDR Gold Trust (NYSE: GLD). Paulson’s full holdings are here.

5. Baupost Group
> Assets under management: $25.0 billion
> Year founded: 1983
> Location: Boston

Baupost is said to be a value fund, but its strategies can use debt and equity, and the fund often has a substantial position in cash rather than being long or short. Fund manager Seth Korman’s holdings at the end of 2011 showed some $3.336 billion in U.S. equities. Along with over a $500 million stake in BP PLC (NYSE: BP), Baupost’s full holdings are here.

4. BlackRock
> Assets under management: $25.5 billion
> Year founded: 1988
> Location: New York

BlackRock’s (NYSE: BLK) $25.5 billion in assets under management include several opportunistic funds that are closed to new capital and have fixed terminal dates, according to the Absolute Return data. All in all, it manages multiple asset classes through various absolute return strategies around the globe.

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3. Och-Ziff Capital Management Group
> Assets under management: $28.4 billion
> Year founded: 1994
> Location: New York

Och-Ziff (NYSE: OZM) was founded in 1994 by Daniel Och. Strategies are varied, but the primary strategies are convertible and derivative arbitrage, credit (high yield and distressed), long/short equity special situations, merger arbitrage, private investments and structured credit via mortgage-backed and asset-backed securities. As of December 31, 2011, the firm had 434 employees worldwide. The flagship OZ Master Fund is a global, multistrategy fund that invests in strategies through North America, Europe, Asia and elsewhere in the world. Net annualized returns for the flagship fund are as follows: -0.48% in 2011, 9.96% past three years and 4.50% past five years (page 7 of annual report).

2. JP Morgan Asset Management
> Assets under management: $45.0 billion
> Year founded: 1984
> Location: New York

This fund group, from one of the healthiest banks in the world, has multiple strategies crossing multiple asset classes via a fund of funds approach as well as through its direct hedge funds under Highbridge Capital Management. Highbridge was actually an acquisition dating in part back to 2004. It employed more than 300 workers and managed $21 billion as of mid-2010, per its website. Even when the asset managed by fund of funds alone are considered, it is enough to get the group into the top 10 in America. The Highbridge focus is based on arbitrage and absolute return strategies. Its most recent holdings can be seen here from Highbridge.

1. Bridgewater Associates
> Assets under management: $76.6 billion
> Year founded: 1975
> Location: Westport, Conn.

Bridgewater manages a total of $120 billion if you include assets not considered as a hedge fund, and it employs roughly 1,200 workers. The fund’s investment strategy is to take large macro-bets using currencies, commodities, bonds and other instruments. It has managed to have very impressive returns through time. The fund has also grown through gathering more assets from clients in recent years. In a Bloomberg video from Davos, Bridgewater’s co-CEO David McCormick discusses the firm being up 23% last year.

JON C. OGG

Sources: Absolute Return, DealBook, SEC, Bloomberg and others.