Hedge Funds 101

Hedge funds are investment vehicles that pool capital from accredited individuals or institutional investors to invest in a variety of assets. They often employ complex strategies, including short selling, leverage, program trading, swaps, arbitrage, and derivatives, aiming to generate high returns regardless of market conditions. These funds are managed by professionals who are compensated based on the fund's performance. Unlike mutual funds, hedge funds are not subject to some of the regulations that are designed to protect investors, which allows them to take on riskier positions. However, they are limited to certain types of accredited investors. In essence, hedge funds aim to maximize returns for their investors and manage risk, often targeting an absolute return irrespective of the broader market performance.

States with the most Hedge Funds

- NY - CA - CT - FL - TX - MA - IL - NJ - PA - VA - GA - WA - MN - CO - TN - NC - MD - MO - OH -

Largest Hedge Funds in the United States

Top 100 Hedge Funds

Rank	Name	Location	AUM ($ Billions)
1	Millennium Management	New York, NY	$505B
2	Citadel Advisors	Miami, FL	$458B
3	Qube Research & Technologies Limited	London,	$348.5B
4	Capula Investment Management	London,	$301.7B
5	Symmetry Investments	St Helier,	$281.4B
6	Balyasny Asset Management	Chicago, IL	$265.4B
7	Pacific Investment Management	Newport Beach, CA	$202.3B
8	Rokos Capital Management	London,	$172.7B
9	Brevan Howard Capital Management	St Helier,	$143.6B
10	Bridgewater Associates	Westport, CT	$141.1B
11	Garda Capital Partners	Wayzata, MN	$137.8B
12	Marshall Wace	London,	$134.5B
13	Schonfeld Strategic Advisors	New York, NY	$124.7B
14	D. E. Shaw	New York, NY	$120.5B
15	Mariner Investment Group	Harrison, NY	$116.5B
16	Alphadyne Asset Management	New York, NY	$115.3B
17	Exoduspoint Capital Management	New York, NY	$108.6B
18	Verition Fund Management	Greenwich, CT	$107.3B
19	Oaktree Capital Management	Los Angeles, CA	$107B
20	Eisler Capital US	New York, NY	$106.3B
21	Two Sigma Investments	New York, NY	$106.3B
22	Squarepoint OPS	New York, NY	$105.9B
23	Two Sigma Advisers	New York, NY	$101.6B
24	Fortress Investment Group	New York, NY	$99.4B
25	Blackrock Capital Management	Wilmington, DE	$96.7B
26	Renaissance Technologies	New York, NY	$94.4B
27	Cerberus Capital Management	New York, NY	$94.3B
28	Arrowstreet Capital	Boston, MA	$93.1B
29	Bracebridge Capital	Boston, MA	$79.1B
30	Elan Capital Management	London, Greater London,	$79.1B
31	TPG Angelo Gordon	New York, NY	$75.9B
32	Element Capital Management	New York, NY	$74.8B
33	Capstone Investment Advisors	New York, NY	$69B
34	IFM Investors PTY	Melbourne,	$66.4B
35	Davidson Kempner Capital Management	New York, NY	$66.1B
36	AQR Capital Management	Greenwich, CT	$63.4B
37	Tudor Investment	Stamford, CT	$62.9B
38	TA Associates	Boston, MA	$60.1B
39	Lighthouse Investment Partners	Palm Beach Gardens, FL	$54.5B
40	Farallon Capital Management	San Francisco, CA	$52.9B
41	Adage Capital Management	Boston, MA	$52B
42	Kedalion Capital Management	London, London,	$51.2B
43	Blackstone Infrastructure Advisors	New York, NY	$48.6B
44	Centerbridge Partners	New York, NY	$44.3B
45	AHL Partners	London,	$42.3B
46	Bayview Asset Management	Coral Gables, FL	$41.4B
47	Blackstone Tactical Opportunities Advisors	New York, NY	$37B
48	Holocene Advisors	New York, NY	$36.7B
49	Hudson BAY Capital Management	Greenwich, CT	$34.5B
50	Ssga Funds Management	Boston, MA	$34.5B
51	Tenaron Capital Management	New York, NY	$34.4B
52	Grosvenor Capital Management	Chicago, IL	$34B
53	Voloridge	Jupiter, FL	$33.8B
54	Paloma Partners Management	Greenwich, CT	$33.2B
55	Walleye Capital	Plymouth, MN	$33B
56	Blackstone Alternative Solutions	New York, NY	$31B
57	Silver Point Capital	Greenwich, CT	$30.1B
58	Ares Capital Management	Los Angeles, CA	$30.1B
59	Polar Asset Management Partners	Toronto,	$29.9B
60	Select Equity Group	New York, NY	$29B
61	White Oak Capital Management Consultants	Prabhadevi, Mumbai,	$28.2B
62	HHLR Advisors	Singapore,	$27.5B
63	Caxton Associates	New York, NY	$25.6B
64	Haidar Capital Management	Pearl River, NY	$25.4B
65	Monarch	New York, NY	$25.4B
66	Baupost Group	Boston, MA	$24.8B
67	Alkeon Capital Management	New York, NY	$24.4B
68	Global Endowment Management	Charlotte, NC	$24B
69	Lone Pine Capital	Greenwich, CT	$23.2B
70	Marathon Asset Management	New York, NY	$22.8B
71	Alyeska Investment Group	Chicago, IL	$22B
72	Universa Investments	Miami, FL	$22B
73	Baker Brothers Investments	New York, NY	$22B
74	GC Advisors	Chicago, IL	$22B
75	Magnetar Financial	Evanston, IL	$21.6B
76	Strategic Value Partners	Greenwich, CT	$21B
77	Soroban Capital Partners	New York, NY	$20.3B
78	HBK Capital Management	Dallas, TX	$20.2B
79	Meritage Group	San Francisco, CA	$20.2B
80	Capital Fund Management S.A.	Paris,	$20.2B
81	MIO Partners	New York, NY	$20.1B
82	AB Carval Investors	Minneapolis, MN	$19.6B
83	Systematica Investments Limited	St Helier,	$19.6B
84	Centiva Capital	New York, NY	$19B
85	Pershing Square Capital Management	New York, NY	$19B
86	Graham Capital Management	Rowayton, CT	$18.4B
87	III Capital Management	Boca Raton, FL	$18.4B
88	Laurion Capital Management	New York, NY	$18.3B
89	Linden Advisors	New York, NY	$18.2B
90	Investure	Charlottesville, VA	$18B
91	Polar Capital	London,	$17.7B
92	Orbis Investment Management Limited	Hamilton,	$17.5B
93	Cbre Investment Management	New York, NY	$17.3B
94	Varde Management	Minneapolis, MN	$17.2B
95	JJJ Capital Management	London,	$17B
96	Durable Capital Partners	Bethesda, MD	$16.9B
97	Appaloosa	Short Hills, NJ	$16.8B
98	Deerfield Management	New York, NY	$16.1B
99	Magnitude Capital	New York, NY	$16B
100	Grantham Mayo VAN Otterloo	Boston, MA	$16B

Source: SEC Filings, Apr 2024
Top 101-200 Hedge Funds

Limited Partners Seletion Criteria

Investing in hedge funds could be a lucrative strategy, but it involves a considerable amount of risk compared to other asset classes. Limited partners, or investors evaluating a hedge fund, typically assess the following factors:

1. Performance Record: The historical performance of the hedge fund is a vital factor. They search for consistent, high returns and consider how the fund performed during difficult market periods.

2. Management: The management’s experience and strategy are essential. Good management provides insights into their investment style, risk management, and the solidity of their operation.

3. Risk Management: Investors should understand the risk management strategies of a hedge fund. They examine how the fund mitigated risk in various market conditions.

4. Fees: Hedge funds are notorious for their high fees. The classic ‘2 and 20’ fee structure—two percent of total assets and 20% of profits—is commonly known. Potential investors must take these fees into consideration when calculating potential returns.

5. Transparency: The level of transparency that the hedge fund management offers to the limited partners is another crucial factor. Frequent, detailed reports about the fund’s performance, operations, and strategy allow investors to make informed decisions.

6. Diversification: The level of diversification in the hedge fund is important. It reduces risk if other investments falter.

7. Liquidity: Limited partners need to understand the liquidity provisions of the investment. Funds often require investors to commit their money for a certain period, making it critical to understand the terms.

8. Size of the Hedge Fund: The size of the hedge fund can impact its agility in the market. Too large, and it may be slow to move, too small, and it may lack influence and stability.

9. Leverage: It’s vital to understand how much debt the fund uses to finance its assets. High leverage can provide high returns, but it can also direct to significant losses.

Limitations and risks vary among hedge funds, so it’s crucial for potential limited partners to conduct thorough research, consultation, and due diligence before investing.

Investment Strategies

Hedge funds invest in a wide range of financial markets. Unlike mutual funds, they are not subject to some of the regulations that are designed to protect investors, allowing them to use aggressive strategies that are unavailable to mutual funds and ETFs. Here's a breakdown of how they might invest:

1. Long/Short Equity: This is the simplest strategy where hedge funds go long (buy) on some stocks they expect will increase in value and go short (sell/borrow) on stocks they anticipate will decrease in value.

2. Event-Driven: Some hedge funds focus on events like mergers, acquisitions, and buyouts or other corporate actions. They buy stocks of companies that are expected to benefit from such events.

3. Global Macro: This strategy involves making bets on various macroeconomic events. The funds can invest in equities, bonds, futures, currencies, and commodities.

4. Relative Value/Arbitrage: These funds take advantage of price discrepancies between financial instruments. For instance, a fund might buy a stock and then short-sell the equivalent equity index futures contract if it considers the stock undervalued.

5. Distressed Securities: Certain funds specialize in securities of companies near or going through bankruptcy. They seek to buy the company's debt at a discount to make a profit when the company recovers.

6. Managed Futures: A strategy that involves going long or short in futures contracts in areas like commodities, currencies and interest rates.

7. Quant Funds: Use highly sophisticated quantitative models to identify investment opportunities. High-frequency trading (HFT) is a type of quant strategy.

8. Multi-Strategy: This is a more diversified approach where the fund invests in a variety of strategies to generate returns.

Leverage or borrowed money is often used in these strategies to maximize return, but it also intensifies the potential losses. It's also important to note that hedge funds often require investors to lock up money for a period of time, a term called "lock-up period", during which investors cannot withdraw funds.

Hedge funds look at several factors when evaluating job applicants, such as:

1. Education: A strong academic background in finance, economics, or a quantitative field is often preferred. Fund managers value top-tier university degrees. Advanced degrees such as MBA or Ph.D., and professional qualifications like CFA, can be a plus.

2. Experience: Previous experience in investment banking, equity research, proprietary trading, risk management or related fields, that demonstrate the necessary skills and understanding needed for a hedge fund job is crucial.

3. Knowledge and Skills: Hedge funds look for a strong understanding of financial markets and investment strategies, excellent statistical and analytical abilities, knowledge of financial modeling and data analysis software, and trading experience. Python, R, SQL, and Excel skills are also highly sought after.

4. Personality Traits: Hedge funds tend to prefer individuals who are risk-takers, decisive, resilient under stress, and independent thinkers.

5. Cultural Fit: Compatibility with the firm's culture is essential. Many hedge funds have a rigorous, high-performance culture.

6. Networking: Connections in the industry can increase chances of getting hired, since hedge funds often rely on referrals and recommendations when hiring.

7. Track Record: For higher positions, particularly portfolio manager roles, a successful track record of managing investments and generating positive returns can significantly enhance an applicant's profile.

8. Passion for Investing: A genuine interest in and passion for financial markets and investing is necessary, demonstrated by personal trading and investing activities.

In interviews, be prepared for technical questions to test your knowledge of finance and understanding of hedge fund strategies. There may also be questions on ethical dilemmas to assess your judgment and integrity.

Each hedge fund is unique and may prioritize certain skills or experiences over others based on their strategies and the role they're hiring for.