Majority of highest-earning hedge fund managers and traders are at quant firms

Forbes’ list of highest-earning hedge fund managers and traders

Forbes has released their 2019 list of the twenty highest-earning hedge fund managers and traders (see also this Forbes analysis).

Here is a synopsis of the results:

Manager Rank 2017 earnings Company Type: Q* or D* Jim Simons 1 $1.6 B Renaissance Technologies Corp. Q Michael Platt 2 $1.2 B BlueCrest Capital Management D Ray Dalio 3 $870 M Bridgewater Associates Q Ken Griffin 4 $870 M Citadel LLC Q John Overdeck 5 $700 M Two Sigma Investments Q David Siegel 5 $700 M Two Sigma Investments Q Israel Englander 7 $500 M Millennium Management Q Paul Tudor Jones II 7 $500 M Tudor Investment Corporation D David Shaw 7 $500 M D.E. Shaw & Co., L.P. Q Jeffrey Talpins 7 $500 M Element Capital Management D Carl Icahn 11 $480 M Icahn Capital Management D Chase Coleman III 12 $450 M Tiger Global Management D Alan Howard 13 $300 M Brevan Howard Asset Management D Crispin Oley 14 $200 M Odey Asset Management D Greg Jensen 15 $150 M Bridgewater Associates Q Peter Muller 15 $150 M PDT Partners Q Robert Prince 15 $150 M Bridgewater Associates Q Steven Schonfeld 18 $130 M Schonfeld Group Q Peter Brown 19 $100 M Renaissance Technologies Corp. Q Paul Singer 19 $100 M Elliott Management D

** Note: D (primarily discretionary) or Q (primarily quantitative) is often hard to determine and not clear-cut. We rely here on some outside commentaries.

Analysis

Needless to say, the one fact that stands out in this table is that the majority of the top 20 are associated with funds and trading operations that are primarily quantitative, as opposed to those who predominately rely on other, more discretionary, approaches. As Forbes columnists Nathan Vardi and Antoine Gara explain,

The computer geeks are taking over Wall Street. During a disappointing year that saw the average hedge fund manager lose money, elite quantitative traders stood out in 2018 from the rest of the trading crowd. More than half of the 20 highest-earning hedge fund managers and traders in 2018 were associated with computer-driven algorithmic trading.

Among those featured in the Forbes analysis were Jim Simons, founder of Renaissance Technologies and arguably the best-known quantitative trader ever, and John Overdeck and David Segel, whose Two Sigma Investments continues to do very well, returning 11% net of fees in its Absolute Return fund and 14% net of fees in its Compass fund. Overdeck and Segel both started their careers at D.E. Shaw, whose founder David E. Shaw also makes the list.

Other hedge funds

Aside from the highly quantitative operations, 2018 has been a “miserable” year, according to Vari and Gaza. As we highlighted in a previous Mathematical Investor blog, most hedge have done rather poorly lately. If we normalize the HFRI FWI index to 1.00 at the end of 2007, this index increased only about 40% through mid-2018, whereas the S&P 500 has increased by 148%.

It is true that the past eight years have not seen a major correction, but as Cliff Asness of AQR points out, even if one does a comparison differently, the outcome is not different. Asness concludes,

I find the story that hedge funds as a whole are now much closer to regular old traditional active stock picking, and thus less special than before, quite plausible. Given traditional active stock picking is such a consistent long-term disappointment, this ain’t good.

Still, it is clear that the real test of hedge funds will come in the next significant correction (more than the recent 15-20% correction). Will they weather this correction better than the market indices such as the S&P 500? We will see.