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 - WA - CO - MN - GA - TN - NC - MD - OH - MO -

Largest Hedge Funds in the United States

Top 100 Hedge Funds

Rank	Name	Location	AUM ($ Billions)
1	CITADEL ADVISORS	Miami, FL	$391.2B
2	MILLENNIUM MANAGEMENT	New York, NY	$390.6B
3	CAPULA INVESTMENT MANAGEMENT	London,	$301.7B
4	SYMMETRY INVESTMENTS	Grand Cayman,	$207.8B
5	BALYASNY ASSET MANAGEMENT	Chicago, IL	$201.1B
6	ROKOS CAPITAL MANAGEMENT	London,	$172.5B
7	MARINER INVESTMENT GROUP	Harrison, NY	$171.7B
8	BRIDGEWATER ASSOCIATES	Westport, CT	$169.5B
9	PACIFIC INVESTMENT MANAGEMENT	Newport Beach, CA	$147B
10	BREVAN HOWARD CAPITAL MANAGEMENT	St Helier,	$143.6B
11	MARSHALL WACE	London,	$133.6B
12	EXODUSPOINT CAPITAL MANAGEMENT	New York, NY	$114B
13	SCHONFELD STRATEGIC ADVISORS	New York, NY	$110.2B
14	RENAISSANCE TECHNOLOGIES	New York, NY	$109.7B
15	D. E. SHAW	New York, NY	$109.3B
16	GARDA CAPITAL PARTNERS	Wayzata, MN	$105.7B
17	OAKTREE CAPITAL MANAGEMENT	Los Angeles, CA	$99B
18	Two SIGMA INVESTMENTS	New York, NY	$93.9B
19	FORTRESS INVESTMENT GROUP	New York, NY	$92.3B
20	Two SIGMA ADVISERS	New York, NY	$89.8B
21	BRACEBRIDGE CAPITAL	Boston, MA	$86.7B
22	CERBERUS CAPITAL MANAGEMENT	New York, NY	$80.7B
23	ANGELO GORDON	New York, NY	$80.2B
24	ELAN CAPITAL MANAGEMENT	London, Greater London,	$79.1B
25	ALPHADYNE ASSET MANAGEMENT	New York, NY	$76.7B
26	BLACKROCK CAPITAL MANAGEMENT	Wilmington, DE	$75.6B
27	ARROWSTREET CAPITAL	Boston, MA	$73B
28	ELEMENT CAPITAL MANAGEMENT	New York, NY	$68.6B
29	IFM INVESTORS PTY	Melbourne,	$62.4B
30	SQUAREPOINT OPS	New York, NY	$60.8B
31	AQR CAPITAL MANAGEMENT	Greenwich, CT	$57.8B
32	TA ASSOCIATES	Boston, MA	$57.4B
33	DAVIDSON KEMPNER CAPITAL MANAGEMENT	New York, NY	$52.4B
34	FARALLON CAPITAL MANAGEMENT	San Francisco, CA	$50.6B
35	HAIDAR CAPITAL MANAGEMENT	Pearl River, NY	$49.8B
36	TUDOR INVESTMENT	Stamford, CT	$45.9B
37	LIGHTHOUSE INVESTMENT PARTNERS	Palm Beach Gardens, FL	$45.2B
38	ADAGE CAPITAL MANAGEMENT	Boston, MA	$44.6B
39	BLACKSTONE INFRASTRUCTURE ADVISORS	New York, NY	$44.4B
40	CAPSTONE INVESTMENT ADVISORS	New York, NY	$43.7B
41	VERITION FUND MANAGEMENT	Greenwich, CT	$43.6B
42	AHL PARTNERS	London,	$42.2B
43	III CAPITAL MANAGEMENT	Boca Raton, FL	$41.7B
44	HHLR ADVISORS	Singapore,	$41.1B
45	CENTERBRIDGE PARTNERS	New York, NY	$40.5B
46	EISLER CAPITAL US	New York, NY	$40.1B
47	BAYVIEW ASSET MANAGEMENT	Coral Gables, FL	$38.8B
48	BLACKSTONE TACTICAL OPPORTUNITIES ADVISORS	New York, NY	$34.8B
49	GROSVENOR CAPITAL MANAGEMENT	Chicago, IL	$33.2B
50	SYSTEMATICA INVESTMENTS LIMITED	St Helier,	$31.4B
51	PALOMA PARTNERS MANAGEMENT	Greenwich, CT	$30.9B
52	STARWOOD CAPITAL GROUP MANAGEMENT	Miami Beach, FL	$30.7B
53	POLAR ASSET MANAGEMENT PARTNERS	Toronto,	$29.9B
54	SSGA FUNDS MANAGEMENT	Boston, MA	$29.3B
55	HBK CAPITAL MANAGEMENT	Dallas, TX	$28.4B
56	BLACKSTONE ALTERNATIVE SOLUTIONS	New York, NY	$28.3B
57	SELECT EQUITY GROUP	New York, NY	$27.7B
58	BAUPOST GROUP	Boston, MA	$27.4B
59	VOLORIDGE	Jupiter, FL	$27.1B
60	HUDSON BAY CAPITAL MANAGEMENT	Greenwich, CT	$27.1B
61	ARES CAPITAL MANAGEMENT	Los Angeles, CA	$26.8B
62	LYXOR ASSET MANAGEMENT	New York, NY	$26.7B
63	HOLOCENE ADVISORS	New York, NY	$26.5B
64	SILVER POINT CAPITAL	Greenwich, CT	$26B
65	PARALLAX VOLATILITY ADVISERS	San Francisco, CA	$24.6B
66	GLOBAL ENDOWMENT MANAGEMENT	Charlotte, NC	$24B
67	MAGNETAR FINANCIAL	Evanston, IL	$23.9B
68	CHEYNE CAPITAL MANAGEMENT UK	London,	$23.3B
69	BAKER BROTHERS INVESTMENTS	New York, NY	$23.2B
70	LONE PINE CAPITAL	Greenwich, CT	$23B
71	CAXTON ASSOCIATES	New York, NY	$22.7B
72	MIO PARTNERS	New York, NY	$22.7B
73	ALKEON CAPITAL MANAGEMENT	New York, NY	$21B
74	VARDE MANAGEMENT	Minneapolis, MN	$20.3B
75	SOROBAN CAPITAL PARTNERS	New York, NY	$20.2B
76	GC ADVISORS	Chicago, IL	$19.9B
77	AB CARVAL INVESTORS	Minneapolis, MN	$19.6B
78	TENARON CAPITAL MANAGEMENT	New York, NY	$19B
79	MERITAGE GROUP	San Francisco, CA	$18.5B
80	PHARO MANAGEMENT	New York, NY	$18.2B
81	ASCENSION INVESTMENT MANAGEMENT	St. Louis, MO	$17.9B
82	POLAR CAPITAL	London,	$17.7B
83	CBRE INVESTMENT MANAGEMENT	New York, NY	$17.7B
84	STRATEGIC VALUE PARTNERS	Greenwich, CT	$17.6B
85	LAURION CAPITAL MANAGEMENT	New York, NY	$17.6B
86	MARATHON ASSET MANAGEMENT	New York, NY	$17.4B
87	INVESTURE	Charlottesville, VA	$17B
88	WOODLINE PARTNERS	San Francisco, CA	$16.8B
89	UNIVERSA INVESTMENTS	Miami, FL	$16.4B
90	MONARCH	New York, NY	$16.3B
91	DRA ADVISORS	New York, NY	$16.3B
92	PERSHING SQUARE CAPITAL MANAGEMENT	New York, NY	$16.2B
93	GRANTHAM MAYO VAN OTTERLOO	Boston, MA	$16.2B
94	D. E. SHAW INVESTMENT MANAGEMENT	New York, NY	$16B
95	PERMIRA CREDIT LIMITED	London,	$16B
96	GRAHAM CAPITAL MANAGEMENT	Rowayton, CT	$15.5B
97	CENTIVA CAPITAL	New York, NY	$15.3B
98	ORBIS INVESTMENT MANAGEMENT LIMITED	Hamilton,	$15.2B
99	DEERFIELD MANAGEMENT	New York, NY	$15.1B
100	ALYESKA INVESTMENT GROUP	Chicago, IL	$15B

Source: SEC Filings, July 2023
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.