The hedge fund industry manages over $3 trillion in assets and continues to grow in size and influence. With thousands of funds to choose from, it can be challenging to identify the very best hedge funds to invest in. This article we will be ranking the 10 most popular hedge funds based on assets under management (AUM), returns, reputation, and other factors.
What is a Hedge Fund?
Before diving into the rankings, let’s review what exactly a hedge fund is.
Hedge funds are alternative investments that employ a variety of sophisticated strategies to generate returns. They are actively managed by professional investment managers who have more flexibility than traditional mutual funds. Hedge funds cater to accredited, institutional, and high-net-worth investors.
Some key characteristics of hedge funds:
- Use of leverage, short-selling, derivatives and arbitrage
- More diverse investment options compared to mutual funds
- Higher fees charged in the form of management fees and performance fees
- Less regulatory oversight compared to mutual funds
- Typically only available to accredited investors and institutions
- Illiquid investments with lock-up periods and redemption restrictions
The diverse investment approaches of hedge funds aim to reduce portfolio risk and generate positive returns in any market environment. Top-performing hedge funds can provide investors with exceptional returns over the long run.
Methodology for Rankings
Several factors were considered in developing the rankings of the top 10 hedge funds of 2023:
- Assets Under Management (AUM) – The total assets managed by the hedge fund. Larger funds tend to have a stronger track record and be more institutional in nature.
- Returns – The historical annual returns over 1, 3, and 5 year periods. Consistent outperformance demonstrates skill in delivering alpha.
- Sharpe Ratio – Measures returns generated per unit of risk taken. The higher the Sharpe ratio the better.
- Reputation & Awards – Brand recognition and industry awards for performance and management.
- Minimum Investment – The minimum investment accepted, which can range from $10,000 to over $10 million.
- Strategies – The hedge fund strategies employed, like equity long/short, global macro, event-driven etc.
With these criteria assessed, here are the rankings for the top 10 hedge funds of 2023:
10 Most Popular Hedge Funds of 2023
1. Bridgewater Associates
Location: Westport, CT
AUM: $150 billion
Minimum Investment: $5 million
Strategies: Global macro
Founded by legendary investor Ray Dalio in 1975, Bridgewater Associates is the world’s largest hedge fund with $150 billion in AUM. The fund pioneered the global macro investing strategy, making large directional bets across various asset classes like currencies, bonds, commodities and equities.
Bridgewater focuses heavily on analytics and risk management. The fund develops complex economic models to identify mispriced assets and macroeconomic trends. Compliance and risk control are central to the firm’s investment process.
With its innovative global macro strategies, Bridgewater has delivered net returns of 12% annually since inception. Recent performance has been strong with reported net gains of 14.6% in 2020 and 5.5% in 2021. Bridgewater remains an industry leader given its size, returns, innovation and influence.
2. Millennium Management
Location: New York, NY
AUM: $60 billion
Minimum Investment: $1 million
Strategies: Multi-strategy
Founded in 1989 by billionaire Israel Englander, Millennium Management oversees $60 billion in assets across a variety of strategies. The diversified hedge fund is structured into 12 independent teams that utilize 100 different trading strategies, including equity, fixed income, derivatives, and more.
Millennium has generated annualized net returns of 12% since its founding. The fund has continued its strong performance with estimated net gains of 7% in 2020 and 11% in 2021. Millennium is highly respected given Englander’s consistency and track record spanning over three decades.
3. Citadel
Location: Chicago, IL
AUM: $50 billion
Minimum Investment: $10 million
Strategies: Multi-strategy
Citadel was founded by billionaire Ken Griffin in 1990. With $50 billion in AUM, Citadel is one of the largest multi-strategy hedge funds in the world. It combines diverse strategies like fundamental equities, quantitative/systematic, credit, macro, and arbitrage across markets.
Citadel Securities, its market making division, executes over 27% of U.S. equities volume. The firm is powered by strong technology infrastructure and has over 1,500 employees.
The flagship Wellington fund has generated annualized net returns of 22% since inception. Citadel had strong performance in 2020 (24% net) and 2021 (26% net) driven by its equity investments. The fund is respected for its scale, technology leadership, and return consistency.
4. Renaissance Technologies
Location: East Setauket, NY
AUM: $65 billion
Minimum Investment: $10 million
Strategies: Quantitative
Renaissance Technologies was founded in 1982 by former codebreaker Jim Simons. The legendary quantitative hedge fund firm oversees $65 billion in AUM today. Renaissance utilizes complex mathematical models and algorithms to systematically trade instruments like futures, stocks, options and currencies.
The secretive Medallion fund is open only to Renaissance insiders and has generated average annual returns of 66% before fees since 1988. Due to Medallion’s wild success, Simons has become one of the wealthiest people alive with a net worth near $25 billion.
Although returns have moderated in recent years, Renaissance remains a quant powerhouse due to its mathematical approach, risk management, and technology capabilities.
5. Elliot Management
Location: New York, NY
AUM: $55 billion
Minimum Investment: $10 million
Strategies: Activist
Founded by billionaire Paul Singer in 1977, Elliott Management oversees $55 billion with an activist, distressed debt strategy. The fund acquires equity stakes in distressed, undervalued companies and uses its influence to make operational, financial, and management changes.
Elliott takes concentrated, long-term positions and has a successful track record of restructuring companies and earning substantial returns for investors. The fund has delivered 14% average annual returns since inception.
Recent activist campaigns include Twitter, Dell, AT&T, eBay, and SoftBank. Elliott is respected as one of the most successful activist funds given its strong returns and involvement in high-profile deals.
READ ALSO: The 10 Most Popular Hedge Fund Companies Worldwide
6. Two Sigma
Location: New York, NY
AUM: $58 billion
Minimum Investment: $10 million
Strategies: Quantitative
Two Sigma was formed in 2001 by former D.E. Shaw portfolio managers David Siegel and John Overdeck. The quantitative investment firm manages $58 billion in assets.
Powered by AI, machine learning and its Venn open source programming language, Two Sigma examines vast amounts of data to identify statistical patterns in market behavior. Algorithms and technology drive all aspects of the investment process.
The diversified hedge fund invests across equities, derivatives, commodities, private investments and more. Two Sigma has delivered annualized returns of 17% since inception. The fund is a leader in using quantitative methods, technology, and artificial intelligence to systematically invest.
7. D.E. Shaw
Location: New York, NY
AUM: $55 billion
Minimum Investment: $25 million
Strategies: Multi-strategy, quantitative
D.E. Shaw was founded in 1988 by billionaire David Shaw. His pioneering quantitative hedge fund, D.E. Shaw Oculus, deploys sophisticated mathematical models and computational methods. The fund’s diverse strategies also include credit, macro investing and discretionary equity.
With $55 billion in total AUM, D.E. Shaw is one of the largest quantitative hedge funds. Oculus has achieved net annual returns of 18% since inception. Founder David Shaw pioneered the use of computational finance at hedge funds starting in the 1980s.
The firm is respected for its quantitative capabilities, technology focus, risk management expertise and charting the pathway for AI in finance. D.E. Shaw remains an influential industry leader 30 years later.
8. Baupost Group
Location: Boston, MA
AUM: $35 billion
Minimum Investment: $10 million
Strategies: Value, distressed debt
Founded in 1982 by billionaire Seth Klarman, Baupost Group manages $35 billion in value-driven, contrarian investments. The hedge fund invests across public equities, private equity, real estate and distressed debt.
With its long-term fundamental value investing approach, Baupost has delivered net annual returns of about 10% since inception. The fund has a reputation for being highly selective, holding significant cash weighting while waiting for ideal opportunities.
Baupost also pursues activist positions to unlock value, having taken stakes in ViaSat, eBay, Bioverativ and Willis Towers Watson. Klarman is regarded as one of the greatest contrarian investors of all time.
9. Point72
Location: Stamford, CT
AUM: $22 billion
Minimum Investment: $10 million
Strategies: Equity long/short
Point72 was founded by legendary investor Steven Cohen in 2018 as the successor of his former hedge fund SAC Capital. The long/short equity fund oversees $22 billion in capital and invests primarily in North American and Western European stocks.
Combining rigorous research with experienced portfolio manager insight, Point72 has generated annualized returns of 16% under Cohen. Recent net performance was reportedly 14% in 2020 and 8% in 2021.
Cohen is considered one of the best traders of all time, having made billions with his short-term trading approach. Point72 represents Cohen’s comeback after settling insider trading charges at SAC Capital.
10. Soros Fund Management
Location: New York, NY
AUM: $27 billion
Minimum Investment: $10 million
Strategies: Macro
Soros Fund Management was founded in 1970 by the “Man Who Broke The Bank of England”, billionaire George Soros. The firm manages $27 billion in assets across global macro and public equity strategies.
Soros is known for his currency trading prowess, having made a fortune shorting the British pound in 1992. In macro investing, the fund places highly leveraged bets across equities, interest rates, currencies and commodities.
The flagship Quantum Fund has achieved annualized historical returns above 20%. Recent performance has been positive but more muted. Soros remains influential due to its macro wagers and founder George Soros’ political activism on global affairs.
Top Hedge Fund Strategies
The hedge funds above deploy a variety of different investing strategies and approaches:
Global Macro: A top-down global approach making leveraged bets across asset classes like currencies, bonds, commodities and equities based on macroeconomic trends. Top macro funds include Bridgewater Associates and Soros Fund Management.
Quantitative: Utilize complex mathematical and statistical models to systematically identify patterns and trading opportunities. Leading quant funds include Renaissance Technologies, Two Sigma, D.E. Shaw.
Equity Long/Short: Take both long and short positions in stocks based on fundamental research and modeling. Top long/short funds include Point72 and Citadel.
Event-Driven: Capitalize on events like mergers, spin-offs, reorganizations, bankruptcies, etc. Oversee positions as deals unfold.
Distressed Debt: Invest in securities of firms in or near bankruptcy by purchasing discounted bonds or making loans. Top distressed debt funds include Oaktree Capital and Apollo Global Management.
Activist: Purchase minority stakes in public companies to influence management for strategic, operational and financial changes. Top activist funds include Elliott Management and Third Point.
Multistrategy: Allocate capital across multiple strategies and asset classes to diversify and reduce risk. Citadel and Millennium Management are leading multistrategy funds.
Understanding hedge fund strategies provides insight into their risk-return profiles and diversification potential for an investment portfolio. While equities and bonds make up the core of most portfolios, allocating to alternatives like top-tier hedge funds can enhance returns and mitigate risk over the long run.
READ ALSO: Top 5 Hedge Funds of 2023 Based on Performance and Assets Under Management
Hedge Fund Industry Trends
Several recent trends are shaping the evolution of the hedge fund industry:
Lower Returns: The last decade of ultra-low interest rates and easy monetary policy has dampened returns across capital markets. Even top hedge funds are generating more muted returns in this environment.
Shift from Stars to Systems: There is move away from relying on star portfolio managers towards systematic quant investing powered by data, technology and AI. Data-driven quant funds like Two Sigma are leading this change.
Transparency: To attract institutional investors, funds are providing more transparency including frequent reporting, risk analytics, and operational due diligence.
Reduced Fees: Management and performance fee schedules are declining. Many funds now offer founder share classes with no fees at all to investors willing to lock up capital for multiple years.
Increased Scale: The largest multi-billion dollar hedge funds are continuing to grow their assets under management and consolidate power. Smaller funds are struggling to fundraise.
Rise of Liquid Alternatives: Cryptocurrencies, non-fungible tokens (NFTs), and direct-indexed ETFs provide liquid alternatives to illiquid hedge fund investments.
Sustainable Investing: Following broader societal trends, hedge funds are embracing ESG factors and impact investing focused on environmental sustainability.
These changes are driving evolution, but the hedge fund industry remains innovative in pursuing differentiated returns. For qualified investors, hedge funds will continue playing an important portfolio diversification role.
Hedge Fund Risk Considerations
While top hedge funds can produce market-beating returns over the long run, they also carry substantial risks that investors should weigh:
- High Fees: The typical “2 and 20” fee structure charges 2% of assets annually as a management fee and 20% of profits above a certain hurdle rate. High fees eat into long-term returns.
- Illiquidity: Hedge funds have strict redemption and lock-up provisions to prevent capital flight. Investor capital may be tied up for months or years.
- Leverage: Hedge funds often utilize leverage that can magnify both profits and losses. Leverage introduces downside risk management challenges.
- Lack of Transparency: Managers reveal little about their investment strategies and current positions. Investors must trust the fund’s risk controls.
- Key Person Risk: If the founder or other key portfolio manager leaves, fund performance can suffer significantly.
- Crowded Trades: When many hedge funds pile into the same positions, sudden sell-offs are riskier. Correlations rise and diversification decreases.
Performing thorough due diligence on a hedge fund’s strategy, risk management, liquidity terms, and operational controls can help mitigate these risks. Diversifying across multiple low-correlated hedge funds can reduce risk as well.
While not without risks, the top-tier hedge funds with disciplined strategies can be valuable portfolio additions for accredited investors.
To Recap
Hedge funds represent a dynamic component of the investment universe. The top hedge funds highlighted in this article are leading the industry through their impressive size, performance history, and innovative strategies. However, the recent trends of lower returns, higher transparency demands, and increased adoption of quantitative methods demonstrate that the hedge fund landscape continues to evolve.
For accredited investors, allocating a share of a portfolio to hedge funds makes sense for boosting returns and diversifying exposures. Top funds with disciplined risk management can achieve equity-like returns over time with lower volatility. However, hedge funds do carry meaningful risks from high fees to liquidity constraints that demand thorough due diligence.
The coming years will prove whether the hedge fund industry can navigate the investment challenges ahead and continue generating alpha. Investors will benefit from monitoring industry trends closely when considering hedge fund investment options. If the top firms maintain their performance edge, they will still warrant representation in well-constructed portfolios. But expectations may need to be reset to the new market realities of lower returns across most asset classes.
FAQs About Top Hedge Funds
What is the top hedge fund in the world?
Based on assets under management, returns, and reputation, Bridgewater Associates stands as the top hedge fund in the world. Ray Dalio founded Bridgewater in 1975 and pioneered the global macro investing strategy. With $150 billion under management and average historical returns of 12% net since inception, Bridgewater is the leader.
Which hedge fund has the highest return?
Renaissance Technologies’ Medallion fund has generated the highest returns of any major hedge fund. The secretive quantitative fund owned by Jim Simons has achieved average annual returns of 66% before fees since 1988. However, Medallion returns have moderated in recent years and the fund is now only open to Renaissance insiders.
Other top returning hedge funds based on their lifetime net returns are Citadel Wellington at 22% and D.E. Shaw Composite at 18%. Consistent outperformance over decades makes these funds stand out.
What are the top hedge funds buying right now?
Here are some recent top holdings and buys from notable hedge funds:
- Berkshire Hathaway – bought Chevron, Occidental Petroleum, and Activision Blizzard shares
- Coatue Management – top holdings include Tesla, Microsoft, and Charter Communications
- Third Point – Dan Loeb built stakes in Disney, Intel, Danaher and others
- Tiger Global – added Pagaya, Stripe, DoorDash, Snowflake, Microsoft
- Soros Fund Management – increased buying of electric vehicle stocks like Rivian
By examining SEC filings, investors can identify stocks hedge funds are most bullish on currently. Technology companies like Microsoft appear frequently in recent filings.
How much do you need to invest in a hedge fund?
The minimum investment amounts for most top-tier hedge funds range from $1 million to over $10 million. Some special share classes or offerings may have lower minimums down to $250,000 or $500,000. Others might even go up to $20 million+ for exclusive funds like Renaissance Technologies’ Medallion.
Given the high minimum investments, hedge funds are out of reach for many individual investors. Wealthy individuals, family offices, endowments and pensions make up most of the limited partner investor base.
What is a reasonable fee for a hedge fund?
The typical hedge fund fee structure historically was called “2 and 20” – a 2% annual management fee on assets plus a 20% cut of any profits. But investor demand has pushed these fees down closer to 1-1.5% management fee and 15-18% on performance.
For newer funds or smaller funds under $500 million in AUM, 2 and 20 is still typical. But the mega multi-billion dollar hedge funds charge below that as investors negotiate for better terms. Some hedge funds even offer founder share classes now with 0% management fee to incentivize long lock-up periods.
So while they remain expensive investments, fees across the hedge fund industry are declining. Investors should still try to negotiate the lowest fees possible given the manager, assets, and strategy.
In another related article, How to Become a Hedge Fund Manager: Skills, Education and Career Path
