Both a quantitative trading genius and a trader who recently stopped managing client money top Forbes’ list of the 25 highest-earning hedge fund managers and traders of 2016. James Simons and Michael Platt each personally made an estimated $1.5 billion last year and the way they did it speaks volumes about where the struggling hedge fund industry is these days.
Simons is chairman of the hedge fund firm he founded, Renaissance Technologies, which manages $36 billion. He continues to benefit from Renaissance’s funds, particularly the secretive Medallion that is not open to outside clients. Renaissance’s biggest hedge fund, the $15 billion Renaissance Institutional Equities fund, was up 21.5% net of fees in 2016.
Simons helped usher in the quantitative trading wave that has been building for decades and is now dominating the hedge fund world, leaving most of the firms that rely primarily on human decision-making in the dust. The majority of the 10 top-earning hedge fund managers and traders of 2016 to a greater or lesser extent use computers and systems-based approaches to trading financial markets.
Meanwhile, Platt has dozens of humans organized into professional trading teams working at his London-based BlueCrest Capital Management. But last year the teams were only trading Platt’s money after the billionaire returned all $7 billion of outside cash BlueCrest managed to clients and turned his firm into a super-sized family office.
Platt was following in the footsteps of many prominent hedge fund billionaires who have stopped managing client capital, like George Soros, Stanley Druckenmiller and Steve Cohen. A former JPMorgan trader, Platt had set up BlueCrest in 2000 and grew it into a $35 billion hedge fund firm, but disappointing returns and transparency concerns caused many investors to yank their money out of BlueCrest. With assets down dramatically, Platt in 2015 figured it was not worth keeping his remaining client cash because of the restrictions placed on things like leverage that came with it. In 2016, Platt’s firm returned 50% net of costs, thanks to highly leveraged bets on interest rates.
Ray Dalio, who founded Bridgewater Associates, the world’s biggest hedge fund firm with $160 billion under management, earned an estimated $1.4 billion in 2016. Dalio’s big Pure Alpha hedge fund returned 2.4% net of fees in 2016 while his All Weather fund was up by 11.6%. One of Bridgewater's smaller hedge funds, Pure Alpha Major Markets, was up by 12.9%.
The hedge fund industry in general continued to struggle in 2016. The average hedge fund manager returned 5.6% net of fees last year according to HFR, compared to the 12% return of the U.S. stock market, as measured by the Standard & Poor’s 500 index. Trailing the U.S. stock market has become an annual ritual for most hedge funds.
In total, the 25 highest-earning hedge fund managers and traders made a combined $10.9 billion in 2016, less than the $12 billion the 25 top-earning hedge fund managers and traders together made in 2015. Forbes includes in its analysis hedge fund managers and traders who now mostly or even exclusively manage their own money.
David Tepper, whose Appaloosa Management hedge fund firm now manages $17 billion, earned an estimated $750 million in 2016. While Ken Griffin, who runs hedge fund firm Citadel, earned $500 million. Both Tepper and Griffin are widely viewed as among the industry’s elite and churned out respectable years in 2016, but their main funds underperformed the U.S. stock market.
Two activist billionaires known for shaking up companies and even countries had relatively solid years in 2016. Paul Singer's Elliott Management settled a 15-year battle with the government of Argentina in 2016 over outstanding bond payments and the hedge fund posted returns of 13% in 2016 after fees. Daniel Loeb’s main Third Point hedge fund returned 6.1% in 2016. Singer and Loeb each earned an estimated $400 million last year.
Former computer science professor David Shaw founded one of the first quantitative hedge fund firms, D.E. Shaw, known for its use of sophisticated mathematical modeling and algorithms. Shaw earned an estimated $400 million in 2016. Two of his former executives, John Overdeck and David Siegel, have built their own big quantitative trading firm, Two Sigma Investments, and both Overdeck and Siegel earned an estimated $375 million in 2016.
Other quantitative hedge fund managers on the list include Pete Muller of PDT Partners, who earned an estimated $200 million in 2016, and the co-chief executives of Renaissance Technologies, Robert Mercer and Peter Brown, who each earned an estimated $125 million.
A new hedge fund on this year’s list is Christopher Rokos’s Rokos Capital Management. The former founding partner of Brevan Howard Asset Management, one of Europe’s biggest hedge funds, Rokos is now on his own. The firm manages more than $6 billion and its main Rokos Global Macro hedge fund returned 20.1% net of fees in 2016. Rokos earned an estimated $200 million in 2016.
At 37, Brett Icahn is the youngest trader on the list. With his trading partner, David Schechter, Icahn has been co-managing the Sargon Portfolio of his billionaire dad's investment fund for years. The fund manages Carl Icahn's money and assets belonging to publicly-traded Icahn Enterprises. The portfolio performed very well in recent years and reached $8 billion in size. Under a 2012 deal struck with Carl Icahn, Brett Icahn and Schechter both received a $280 million payment at the end of September 2016 that was equal to 7.5% of the profit the Sargon portfolio generated over an annual return hurdle of 4%.
The top-earning hedge fund managers and traders list is reported by Grace Chung, Dan Fisher, Antoine Gara, Noah Kirsch and Jennifer Wang. To determine the highest-earning hedge fund managers and traders of 2016, we examined hedge fund returns and worked to understand the fee and ownership structure of a wide array of money management firms. Hedge fund firms generally charge management fees of 2% and performance fees that give them 20% of the trading profits, but we found all sorts of variations on this theme. In addition, our earnings figures include the personal gain or loss of each manager’s interest in their funds. Our figures are pretax, account for firm expenses and profit-sharing arrangements, and exclude gains or losses stemming from ownership in the investment firms themselves or from investments held outside of the managed investment pools.
