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Richest hedge Funds
Dr. brownstein’s winning formula
Canyon’s seCret empire
Cashing in on Chaos
Fe b r u a r y 2 0 1 1 b l o o m b e r g m a r k e t s
Brownstein abandoned academia in 1989 to try to make some money. putting him at the top of BloomBerg markets’ list of the 100 best-performing hedge C o n t i n u e d o n pag e 4 3 photograph by ben baker/ redux The STrucTured PorTfolio ManageMenT founder MineS once-Shunned MorTgage bondS for ProfiTS.the WorlD’s richest heDge FunDs 100 cover stories For 20 years. a company managing $2 billion in five partnerships. He specialized in metaphysics. Brownstein is the founder of Structured Portfolio Management LLC. which examines the character of reality itself. Don Brownstein taught philosophy at the University of Kansas. That photo is now a relic standing behind the curved bird’s-eye-maple desk in Brownstein’s corner office in Stamford. ¶ The career change paid off. ¶ In a photo from his teaching days. with a bushy black beard and unruly hair. Connecticut. he looks like a young Karl Marx. the abstrusely named Structured Servicing Holdings LP.Brownstein’s winning Formula By Anthony EffingEr and KAthErinE Burton . returned 50 percent in the first 10 months of 2010. hiS flagShiP fund’S 50 PercenT gain PuTS hiM aT The ToP of our roSTer of The beST-PerforMing large hedge fundS. His flagship fund. 40 bloomberg markets Fe b r u a r y 2 0 1 1 Dr.
no. 1 50% 2010 Best-performing large funds Don Brownstein. left. and William Mok Structured Portfolio Management FunD: Structured Servicing Holdings 135% 2009 ToTal ReTuRn .
Rob Citrone Paulson Enhanced. Sweden AQR Capital Management. Robert Gibbins Linden International.S.5 49. Ray Dalio Ikos FX.S.1 35.9 2. U. U. Element Capital Management.S.8 27.S. U.the 100 topperforming Large hedge fUNdS Fund.S. assets.7 1.8 19. Michael Weinstock. U.2 21. U. U. TCP Investment Committee Ellerston Asia Pacific.9 7. Russia Bridgewater Associates.0 * 1.K. Man Fund Management.2 2.2 1.S.S. Cerberus Capital Management. David Tepper Cerberus Institutional Partners Series IV.S.9 58.2 22. Team managed Sola 1 Class A.2 16.K.9 11. U.6 18.7 1.2 1. Doug King Monarch Debt Recovery.6% 195.0 13.3 35.3 38.8 2. Pine River Capital Management.5 1.9 134.5 1. Ashok Jacob Silver Point Capital Offshore. Alexander Branis Pure Alpha II.S. U.6 2.0 18.2 24. David Tepper Coatue Management.0 1.0 72. Joe Wong All Weather 12% Strategy. Team managed Appaloosa Investment. Jim Simons Man AHL Diversified.0 5.4 15. Autonomy Capital Research.1 2.2 3. Bridgewater Associates. Two Sigma Investments.S. Jacob Gottlieb Renaissance Institutional Futures.2 1.9 14.6 3.9 7.S. Prosperity Capital Management.S. Robert Prince Two Sigma Investments Compass U. Visium Asset Management. John Paulson Visium Balanced Offshore. U. Robert O’Shea Structured Portfolio Management.8 65. U. Edward Mule. U.4 132. Elena Ambrosiadou Cevian Capital II. Michael Coleman. Don Brownstein. Cyprus Cevian Capital.7 21.6 18.2 92.0 14. Third Point. Australia Silver Point Capital. Ikos Asset Management.1 120.0 11. Jeffrey Talpins Discovery Global Opportunity.1 15.0 17.0 3.1 34. Ray Dalio.6 69.5** NA NA 2009 RetuRn ManageMent FirM.K. U.2 23. Mortgage-backed arbitrage Emerging markets Macro Currency Activist Macro Mortgage-backed arbitrage Event driven Macro Multistrategy Macro Macro Macro Systematic Global credit Distressed Commodity Distressed Long/short Fixed income Long/short Fixed-income arbitrage Emerging markets Merger arbitrage Long/short Managed futures Managed futures Credit Credit Long/short Credit 1.. U. U. Ellerston Capital.7 20. Ortus Capital Management. Philippe Laffont Element Capital.9 3.0 6. Chris Pucillo Tennenbaum Opportunities V. Andrew Herenstein BlackRock U.S. U.3 19.3 17.8 –16.0 5.0 18. U.S. Renaissance Technologies. Steve Kuhn Third Point Offshore.3 15. U. Aisling Analytics. Richard Plackett. Paulson & Co. Daniel Loeb Autonomy Global Macro. Linden Asset Management.S.4 23. U.9 16. Emerging Companies.S. Hong Kong Bridgewater Associates.0 78.0 19.S. Solus Alternative Asset Management. Tennenbaum Capital Partners. U. bets on mortgages.2 2.1 22.S. Christer Gardell. U. Appaloosa Management.5 29.3 2. Singapore Monarch Alternative Capital. Stephen Feinberg Merchant Commodity.0 1.4 4. U.0 25.S. Coatue Capital Management.5% 39. U.K.S.9 1. Manager(s) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 · 21 22 23 24 25 26 27 28 29 30 · In BloomBerg markets’ first-ever ranking of the top 100 large hedge funds. BlackRock Investment Management. U.7 3.0 30.7 4. Ralph Cox Thoroughbred.9 15.9 20.S. Ray Dalio Ortus Currency Program.7 20.. U.3 27.5 1.7 9. in billions ytd total RetuRn Structured Servicing Holdings. Lars Forberg AQR Global Risk Premium. Team managed Nisswa Fixed Income.0 38. U. Joe Zhou Pure Alpha 12%.0 30. Appaloosa Management. William Mok Russian Prosperity.S. gold.1 1. location strategy .S. emerging markets and global economic trends stand out.7 23. Discovery Capital Management.2 1.
S. manager(s) management Firm. Gavin Ferris Joho Partners.0 25. Jim Simons BlueTrend. Larry Robbins Pershing Square International. David Harding Paulson Credit Opportunities.6 9. U.S.5 10. U.4 4.5 –16.5 51.S. U.the WorlD’s richest heDge FunDs assets.3 12.8 6. Christopher Gust Farallon Capital Offshore. U. Larry Robbins aspect Diversified.4 12.S.S.6 35.2 2.0 48.7 2. Thomas Claugus Clive. U.K. U. U.S.0 3. William H. U.0 11.0 1. Rick Rieder Canyon Value Realization. Aspect Capital.2 54.S. U.S. Matthew Tewksbury Bay II Resource Partners. Spinnaker Capital. location strategy 32 33 · 35 36 37 · 39 40 41 42 43 44 · 46 47 · 49 50 51 52 53 54 · 56 · 58 · · 61 62 63 64 · · 67 Man aHL Diversified Futures. Lee Ainslie III Saba Capital Master. Perry Partners. Boaz Weinstein Tewksbury Investment. Jeff Tannenbaum SaC Capital International.7 8.2 –11.0 9.K.S.8 12. Alexis Habib gLg emerging Markets. U. Daniel Och PaRS IV Offshore II Class a/1.1 3.9 2. U. Maverick Capital. U.8 11.2 21.6 10. Renaissance Technologies.3 1. U.6 12.9 2. Leda Braga MKP Offshore Credit.3 12.S. U.4 11. BlackRock Advisors. U. U.S. Donald Sussman Perry Partners International. Kent Janer glenview Opportunity Funds. Spinnaker Capital. Sweden Glenview Capital Management.K.S.3 4.1 1.K.S.3 45. MKP Capital Management.S.S. Canyon Partners.3 2. U. SAC Capital Advisors. Team managed Brummer & Partners Nektar.S. Stevens Capital Management.0 4.K.6 –4. Gross Maverick Class a/1.2 14.4 17. Team managed Man Fund Management. Farallon Capital Management.4 17.2 55. Richard Perry Wolverine Convertible arbitrage Trading.4 –6.1 29.0 3.8 5.3 1. Bart Turtelboom. Netherlands Strategic Value Partners. Marcos Lederman BlueCrest International.9 13.S. Bill Ackman Spinnaker global emerging Markets.5 10. Glenview Capital Management. Anthony Lembke Transtrend Diversified Trend Program–enhanced Risk (USD).4 8. BlueCrest Capital Management. John Paulson Spinnaker global Opportunity. Saba Capital Management. Paloma Partners.6 9.5 82.S.3 19.1 –11.S.0 13. Patrick McMahon.4 17. Millennium Capital Management. Clive Capital.6 9.2 –4.S.3 24. GMT Capital Offshore Management.0 10.1 11.1 106.5 10.2 1. U.K. Robert Karr Paloma Partners. Israel Englander aQR absolute Return.8 3. U.1 13.9 12. U.0 10. Christian Levett Millennium International. U.S.3 10.1 3.8 2. U. Winton Capital Management. Fir Tree Partners.7 41. U.5 1.1 28. U.0 55.5 2009 RetuRn FunD. Thomas Steyer Winton Futures Class B.0 12. Joshua Friedman.6 4. U.1 1.0 28. Fore Research & Management.8 10.2 1. Karim Abdel-Motaal Renaissance Institutional equities. Managed futures Macro Opportunistic Managed futures Long/short Multistrategy Multistrategy Convertible arbitrage Multistrategy Managed futures Credit Emerging-market debt Emerging-market equity Long/short Managed futures Credit Managed futures Distressed Distressed Multistrategy Multistrategy Long/short Multistrategy Long/short Event driven Emerging-market debt Macro Distressed Global credit Long/short Long/short Multistrategy Long/short Commodity Multistrategy Multistrategy 1. Och-Ziff Capital Management.7 5. U.2 1. BlueCrest Capital Management. U.6 10.1 12.S. GLG Partners.2 8. Steven Cohen Fore Multi Strategy.K. Team managed Strategic Value Restructuring.1 Fe b r u a r y 2 0 1 1 b l o o m b e r g m a r k e t s 41 . Mitchell Julis Fir Tree Value. Michael Platt OZ global Special Investments Master.2 14.6 14.4 63. U. AQR Capital Management.2 38.1 12.1 10.4 8.1 26. U.5 11.1 8. Kerim Kaskal. U. Pacific Investment Management. Claude Marion.6 1.S. Matthew Li glenview Funds. U. U.7 11. Paulson & Co.0 22. Brummer & Partners Kapitalforvaltning. Victor Khosla R3.S. in billions ytd total RetuRn 100 14. U.8 11. Joho Capital.1 35.6 11..K. Pershing Square Capital Management. Wolverine Asset Management.0 23.0 5.0 5.4 1. U.K.8 10.S. Transtrend.
.S. David Einhorn Passport Capital global Strategy. U. James Dinan advantage advisers Xanthus.S.1 37. U.6 5.S.0 3. Paul Singer OZ Master. Och-Ziff Capital Management. Passport Capital. Kevah Konner. Daniel Och AQR Capital Management. investors 42 bloomberg markets Fe b r u a r y 2 0 1 1 .1 1.2 30.3 –7. Masao Asai Halcyon Partners Offshore. Perella Weinberg Partners.5 8.0 82.8 6.S. James Dinan Capula global Relative Value a. Michael Leffell.6 9.5 8.S.. Andrew Feldstein Bay Resource Partners Offshore.S. John Burbank York european Opportunities. Elliott Management. U.8 * 1. Carlson Capital. James Dinan OZ asia Master. Craig Effron.7 6. U.2 2.2 21.S.1 1. Oppenheimer Asset Management.S.3 62. Andrew Law Davidson Kempner Distressed Opportunities International Class a. Boussard & Gavaudan Holding.S.0 7.1 7. **as of oct. U.7 8.S. U.7 34. Richard Hurowitz Moore Macro Managers.2 6.3 11.0 2.0 1. Team managed BlueCrest emerging Markets. hedge-fund databases.5 9.7 8. France Blenheim Capital Management.0 12.7 6. Oliver Dobbs elliott International.S.1 returns are for the 10 months ended on oct.S. manager(s) management Firm. Exane Asset Management. Och-Ziff Capital Management.6 8.2 7.K. Clint Carlson Caxton global Investment. U.1 8. Thomas Kempner. U.8 8. Anthony Yoseloff York Select.S.5 30.0 3.8 7.9 8. Halcyon Offshore Asset Management.S.4 7. Ken Griffin CQS Convertible and Quantitative Strategies Feeder. 31.2 NA 30. Greenlight Capital Offshore.S. Cesar Zeitouni.2 10. U. U. U. U. U.5 9.S.9 7.S.S. 29. sources: bloomberg. U.0 1. Brian Stark. Mike Roh Davidson Kempner International.S.S. Daniel Och Shepherd Investments International Class a. Stark Investments. John Bader Carlson Double Black Diamond.5 28.0 1.S. Millburn Ridgefield. in billions ytd total RetuRn 2009 RetuRn FunD. U.4 9. U.S. Citadel Investment Group.1 8.2 1.9 2. U. Relative value Systematic Emerging markets Global credit Long/short Distressed Multistrategy Multistrategy Distressed Long/short Macro Event driven Fixed-income arbitrage Multistrategy Multistrategy Macro Distressed Event driven Long/short Multistrategy Event driven Managed futures Distressed Global special situation Macro Merger arbitrage Long/short Managed futures Event driven Multistrategy Convertible arbitrage Multistrategy Multistrategy 1.S.3 9. Moore Capital Management.1 1. John Paulson Octavian global. hedge-fund firms. BlueCrest Capital Management.K. Curtis Schenker Boronia Diversified.8 1. Caxton Associates.8 1.4 9. Hong Kong Scoggin Capital Management. Thomas Claugus York Credit Opportunities.6 16.2 8.0 3. U.1 23.6 7. Takis Sparaggis Sark Limited .S.6 35. Paulson & Co. Capula Investment Management. U. John Paulson exane 1–archimedes a.6 25. Michael Hintze.7 6.4 33.0 8. Marvin Davidson greenlight Capital. U.8 18. Boronia Capital. U. Gilles Lenoir Blenheim. Daniel Arbess Citadel.6 19.0 7.5 1.9 37.4 5. U.S.6 1. York Capital Management.3 7.1 25.2 43. Australia Paulson & Co. U. U. location strategy · · 70 · 72 73 74 · 76 77 78 · 80 · 82 · · 85 86 · 88 89 90 91 · 93 94 95 96 97 · 99 · aQR Delta.3 30. U. CQS Cayman. Emmanuel Boussard Scoggin Capital Management.9 12.5 8.6 56. York Capital Management.K. York Capital Management.0 9.1 16.7 2.0 6. U. Octavian Advisors.S. Davidson Kempner Capital Management.7 35. U.S.1 9.6 7. Team managed Millburn Diversified Program.the 100 top performing large heDge FUNDs coNtiNUeD assets. includes funds with more than $1 billion in assets. GMT Capital.0 –6.7 5. Louis Bacon Paulson Partners. U. Willem Kooyker Perella Weinberg Partners Xerion Offshore.7 1. *total for both funds is $5 billion. Nick Riley BlueMountain Credit alternatives.6 8. Angus Grinham Paulson Recovery.7 2. Emmanuel Gavaudan. U. BlueMountain Capital Management. 2009.2 45.6 29.2 1. Davidson Kempner Capital Management.0 31.4 1.7 19. Yan Huo. U.
a Los Angeles manager of mutual funds that trade mortgages. beat out funds run by bigger. The hedge-fund ranking uses data compiled by Bloomberg and information supplied by research firms. Brownstein and William Mok.” Gundlach says. won’t say exactly how they made their 2010 killing.) The No. which manage from $250 million to $1 billion. is also run by Prosperity. with a 48 percent return. 2 large fund. with a 39 percent return. They then buy securities they conclude are underpriced. Manager Steve Kuhn bought mortgage bonds selling at what turned out to be bargain prices. to No. It ranks No.” he says. is part of Moscow-based VR Capital Group Ltd. 67. The No. better-known competitors. making it No. who saw it coming and bet that mortgage securities would crash. The SPM Core and SPM Opportunity funds were both up 31 percent. economy to its knees in 2008 and earned billions for hedge-fund managers such as John Paulson.. Investors that bet against a refinancing boom have profited. 1 38% 2010 MostProFitable FUnds ray Dalio. Dalio. Another fund that profited from betting on mortgages is the $1.2 billion Nisswa Fixed Income Fund Ltd. Structured Portfolio’s director of portfolio management. It was the crackup in housing and mortgage markets that brought the U. and helped to boost Daniel Loeb’s Third Point Offshore Fund Ltd. chief executive at Doubleline Capital LP. In percentage terms. 53). 8 among large funds. Loeb invested in Fe b r u a r y 2 0 1 1 b l o o m b e r g m a r k e t s 43 jesse neider . with a 25 percent return. says Jeffrey Gundlach. while the No. “The mortgage market has every single risk. above Bridgewater Associates FunD: Pure Alpha ii 2009 2% ToTal ReTuRn three-way tie for ninth place in the ranking of mid-size funds. The top-performing hedge-fund managers also made money in emerging markets.S. Gold jumped 24 percent to $1. particularly Russia. according to Bloomberg data. Brownstein did it by exploiting his expertise in something almost as esoteric as metaphysics: the market for exotic securities built from residential mortgages. The rally lifted Paulson & Co. managed by Moscow-based Prosperity Capital Management. (See page 48. according to Bloomberg data. returning 50 percent. banks foreclose on housing loans and the government often changes the rules. (See “How We Crunched the Numbers.359. Their longtime strategy is to develop models that predict when homeowners will refinance their mortgages—a move that reduces interest payments on mortgage bonds. Minnesota.” page 54.’s Paulson Gold Fund 26 percent. Many homeowners have been unable to take advantage of tumbling rates to refinance their mortgages because their houses are worth less than they owe on their loans. “Any market that has risks morphs into opportunity. run by Pine River Capital Management LP of Minnetonka. though. fund companies and investors.the WorlD’s richest heDge FunDs 100 funds managing $1 billion or more. Brownstein. People default. 1 mid-size fund.40 an ounce in the 10 months covered by the ranking. including Ray Dalio’s Bridgewater Associates LP. Two of Brownstein’s other funds are in a no. has three funds in the top 15. Brownstein also topped Steven Cohen’s SAC Capital International (No. The mortgage market is often lucrative for hedge funds because it’s volatile. with a 27 percent return. The $1. 17 on the mid-size list. 2 mid-size fund.) Three of the top 10 funds made money on mortgage bonds. 7. is the Russian Prosperity Fund. and in gold.2 billion fund skyrocketed 135 percent in 2009.
run by David Tepper’s Appaloosa Management LP. Och-Ziff Capital Management. David Tepper BlueCrest International.K.3 147. 22. managers need healthy returns on a large pool of client cash to make big money. Robert Prince BlueTrend. U. Christer Gardell.0 133. Team managed Fir Tree Value. U.” says Berg. U.0 287. Berg says.S. Diamondback and Level Global were started by alumni of SAC Capital Advisors LP. U. the WorLD’S moSt-profitABLe heDge FUNDs PRofit. location 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Pure alpha II. Lars Forberg Brevan Howard Master. Fe b r u a r y 2 0 1 1 profits are based on returns for the 10 months ended on oct. None of the firms had been charged with wrongdoing as of mid-December.” Only a few funds at the top of the ranks can justify their fees. Fir Tree Partners.S.6 236. U. usually 2 percent of assets to cover hedge funds’ costs.4 142. investors Because of hedge funds’ fee structure. Overall. do it.” Some hedge funds have a new worry: the wideranging investigation of insider trading by the U. Michael Platt aQR global Risk Premium.S. U. SAC Capital Advisors. The Standard & Poor’s 500 Index rose 6 percent in the same period. Richard Perry Silver Point Capital Offshore. Tudor Investment. Ray Dalio SaC Capital International.7 percent.S. John Paulson Canyon Value Realization. founder of Sigma Investment Management Co. BlueCrest Capital Management. which earned Bridgewater $2. who picks fund managers for individuals and institutions. Joshua Friedman. Stephen Feinberg OZ Master. Greenlight Capital Offshore. On Nov.S. sources: bloomberg. Cerberus Capital Management. U. Canyon Partners.6 309.S. 29 or are based on the latest available figures prior to that date. for gains they could get from cheaper mutual funds.4 141.9 188.S.S. Elliott Management. Half of all households with a net worth of $25 million or more were invested in hedge funds in 2010. Oregon. Paul Tudor Jones II Bridgewater Associates. Ray Dalio. in Portland.4 130. U. manager(s) management Firm.S.S. Connecticut–based Bridgewater manages $60 billion in hedge funds.3 140. Paulson & Co. U.1 300. U. U. The same fund earned 21 percent in 2010. U. Spotty performance aside. a Chicago-based research firm that tracks the affluent.S.6 million in fees. BlueCrest Capital Management. Westport. Appaloosa Management. 3.8 percent. The Pure Alpha funds made money betting 44 bloomberg markets . up from 35 percent in 2007. the Federal Bureau of Investigation raided the offices of Diamondback Capital Management LLC in Stamford. 2. Silver Point Capital. Justice Department.0 428.100 the WorlD’s richest heDge FunDs mortgages too. according to Spectrem Group. Investors are paying high fees. with less impressive returns than in 2009. 99 and 100 gaining just 6. Bridgewater Associates.S. in millions FunD. U.5 202. U.2 215.7 190. (All figures in the BloomBerg markets ranking are net of fees.” Berg says. returned 132 percent.S. hedge-fund databases. making it the biggest firm by assets. Robert O’Shea Cevian Capital II. Daniel Och elliott International. Cevian Capital.. Jeff Tannenbaum Perry Partners International. in Chicago rose 6. His Pure Alpha 12% fund was No. A broad index of hedge funds compiled by Hedge Fund Research Inc. Alan Howard greenlight Capital Offshore. Paul Singer Paulson Credit Opportunities. when the top fund. The most profitable fund in 2010 was Dalio’s Pure Alpha II.2 222. Edward Mule. On average. wealthy Americans are pouring money into funds.2 T he surge doesn’t make sense. which received a subpoena in November demanding documents.K. U. U.2 1.0 137. “The problem is that those funds are probably closed to new investors. hedge funds had a lackluster year.S.25 billion. Mitchell Julis Thoroughbred. Leda Braga Cerberus Institutional Partners Series IV. A 5 percent return on $10 billion is better than a 50 percent return on $100 million. hedge-fund firms.) “People insist on viewing hedge funds as being different from normal investments. earning another $428. Appaloosa Management. “They’re not.254.S. Perry Partners. Sweden Brevan Howard Capital Management.9 percent through October. Steven Cohen Pure alpha 12%. Level Global Investors LP in New York and Loch Capital Management in Boston.082. the top 100 hedge funds rose 13.S. Berg says. with Nos. U. plus 20 percent of any profits. in addition to his usual bets on stocks and bonds. “If you can get into a fund that’s in the top 10 percent. according to people familiar with his holdings. U. David Einhorn Tudor BVI global. U.S. David Tepper appaloosa Investment. AQR Capital Management.5 259.K. says Bill Berg.
John Burbank. sources: bloomberg. U.2 700. U.2 140.2 –25.3 44. Jose Carlos Magalhaes Passport Capital Special Opportunities Strategy.3 26. Brownstein’s Structured Servicing Holdings has returned an average of 28 percent annually since February 1998. Harold de Boer aQR global Risk Premium Tactical. Martin Sandquist Covepoint emerging Markets Macro.8 30.0 335.1 30.0 761.S. U. Michael Hintze Third Point Ultra. he 50 percent gain through October earned Brownstein’s investment team $87 million in fees. ‘the problem is that those funds are probably closed to new investors. hedge-fund firms. U.0 27.K.1 339.7% 48.4 43.S. Richard Conyers.S. Sweden Covepoint Capital Advisors.0 935. remained anemic. Jatin Dewanwala Tarpon all equities. Jonas Bengtsson. Benjamin Nickoll..0 630. Svante Bergstrom.5% 148. U. Brownstein has prospered in a market dominated by math savants. Richard Deitz Prosperity Quest Sub.4 127. economy. Russia Prosperity Capital Management.8 30. U. according to an investor. U.S. Patrik Safvenblad.K.9 Convertible arbitrage Equity directional Mortgage-backed arbitrage Mortgage-backed arbitrage Progressive Capital Partners.0 96. earning $1.7 864. AQR Capital Management. Treasury bonds.3 520.100 the WorlD’s richest heDge FunDs against the U. Walther Lovato gLg Market Neutral. Sean MacLeod.S. SAC Capital International was the secondmost-profitable fund. GLG Partners.’ berg says.1 –14. Lynx Asset Management. Mauritius Structured Portfolio Management.0 49. U. 29. manager(s) management Firm. U.0 545. investors 46 bloomberg markets Fe b r u a r y 2 0 1 1 . Ivan Mazalov Metacapital Mortgage Opportunities. the person said.S.S.S.S.8 41. Steve Roth India Capital. while the average hedge fund dropped 19 percent. when it returned negative 6 percent. Its only losing year was 2008. a person familiar with its performance says. U. Structured Portfolio Management.8 35.7 339. David Pendlebury VR Capital Group.S.K.S.4 26. Ore Hill Partners. U.8 30. Daniel Loeb Lynx 1.4 272.’ T Global macro trade.0 511.9 57.4 82. Switzerland Managed futures Asset allocation Providence Investment Management. Third Point.6 56. includes funds with $250 million to $1 billion under management. Russell Jeffrey CQS Directional Opportunities Feeder. The value of many mortgage bonds depends in large part WorLD’S top-performing miD-SiZe heDge FUNDs assets. according to Bloomberg data.0 790. which rallied as economic growth.0 25. hedge-fund databases. when the fund made its first ‘if you can get into a fund that’s in the top 10 percent. Team managed Providence MBS Offshore. in millions ytd total RetuRn 2009 RetuRn FunD. Event driven/distressed Emerging markets Mortgage-backed arbitrage Long-biased equity $892.6 980. Russia Metacapital Management.7 32.S. Jim Cunningham.6 26.5 23. Alexander Branis. Melissa Ko.5 27.0 39. Jon Thorn SPM Core. Paulson & Co. according to a person familiar with Bridgewater’s trading. which can produce inflation. according to Bloomberg data.S. John Paulson Ore Hill International II. U. William Mok Tulip Trend.6 NA 32. location strategy 1 2 3 4 5 6 7 8 · · 11 12 13 14 15 16 17 18 19 20 VR global Offshore.6 100. Frederick Wahl Obsidian Offshore.7 53. Deepak Narula.5 Bermuda.5 25. BlackRock Advisors. Jonathan Taylor Paulson gold. Brazil Passport Capital. U. William Mok SPM Opportunity.0 1.0 534. India Capital Management. Tarpon Investimentos.0 383.9 27. do it. Mortgage-backed arbitrage Multistrategy Event driven Managed futures Emerging markets Commodities Event driven/distressed Fixed-income arbitrage Macro returns are for the 10 months ended on oct.1 billion in fees through the first 10 months of 2010.2 62.0 312.7 33.3 348.1 85.2 24. Harmonic Capital Partners. Dalio and his managers bought U. CQS Cayman. Stuart Spodek Harmonic Macro Value Program. U.8 767.3 82.
Cayman Islands Prince Street Opportunities. beat the benchmark by investing in oao Bashneft.2 26.4 41.7 million in assets. U.” Mok. Ivan Mazalov Prosperity Cub Fund. “If you’re wrong. a Salomon Brothers alumnus who has a bachelor’s degree in computer science from Columbia University. the russian fund surged 20-fold from its inception to mid-December. U. Bashneft shares jumped 60 percent for the year through Dec. “there is always a risk. Covepoint emerging Markets Macro. sources: bloomberg. address.3 187. location 1 2 3 4 5 6 7 8 9 10 Ping exceptional Value Offshore. 21. then. with $348.0 48. gained 3. and oao lenenergo. loan age and other factors. U.9 35. includes emerging-market funds with at least $100 million in assets. David Halpert Prince Street Capital Management.0 returns are for the 10 months ended on oct. manager(s) management Firm.0 364.S. Marko Dimitrijevic Covepoint Capital Advisors. it’s No. hedge-fund firms. David Herne Prosperity Quest Sub. Westman has been hooked on russian capitalism since 1993. and Prosperity lived up to its name. he learned that siberian oil producer oao surgutneftegaz planned to go private by selling vouchers.S.0 761.7 100.” Westman says. which was essentially a school of interrogators. moving to moscow in 2000 to set up Prosperity capital management. investors 48 bloomberg markets Fe b r u a r y 2 0 1 1 . “there was no turning back. the vouchers shot up 20-fold in six months. While working at a swedish brokerage. and other commodity companies.Westman outside his London office a russian activist During the colD War. russia’s second-largest retailer.6 122. Vr capital group.000. U. in millions $154. The walls of SPM are scrawled with such formulas. “but things are becoming more civilized.” Westman says. the training paid off. a hedge fund specializing in russian stocks. “We were taught to extract information from russians. much nicer shirts). the smaller Prosperity Quest sub Fund.s. agitating for change in corporate russia can be risky because corporate executives often have tight government connections.” Westman’s $1.” JasoN corcoraN on how long homeowners make payments at their current interest rate before either refinancing or defaulting. Brownstein. tops the mid-size list with its Vr global offshore fund.321 percent in the 10 years ended on may 31.” Westman says. “I’m here to argue. Prosperity is an activist fund.1 34. Brownstein grew up poor top emerging-mArKet heDge FUNDs assets. Brownstein’s strength is his mastery of the logic behind the formulas. Greylock Capital Management. “We worked in the school of interpreters. Petersburg’s power grid. U. Hans Humes Zephyr aurora Fund.9 tom WAgner FunD. operator of st. “I’m in charge of pontification and arguing. mattias Westman trained for a soviet invasion in the swedish special forces. compared with a sevenfold increase for the micex index. Ping Jiang Halcyon Power Investment. 47. Prosperity had a near-death experience in 1998. says he loves his role. founded by american richard Deitz.S.3 22. Halcyon Advisors. The top traders have proprietary formulas that predict behavior based on a homeowner’s credit score. who these days looks more like entertainment mogul Barry Diller than the father of communism (much less hair.S. Clive Lloyd everest Capital Frontier Markets. Jonathan Taylor greylock global Opportunity. he’ll prove you wrong. he invested every kroner he had in the offering—about $25. Russia Navis Fund Managers. and we continue to do so to this day. another moscow-based investor.S. an oil producer in the Ural mountains. Vr and Prosperity are two of about a dozen hedge funds that scour the russian markets for an investment edge. Alexander Branis. according to Bloomberg data. when russia defaulted on $40 billion of debt and the firm’s assets dwindled to $35 million from $250 million as foreign investors fled.2 billion russian Prosperity Fund is No.0 225. he says. 2 among mid-size funds in the ranking. 29.2 105. worked out by Mok. 8. hedge-fund databases. which scored a 49 percent return in the first 10 months of 2010. a commodity-fueled recovery took hold.0 ytd total RetuRn 103. Westman and the manager of the fund. Westman has been a board member at oao magnit.5% 57. Cayman Islands Prosperity Capital Management.9 240. Russia Prosperity Capital Management.S.” The son of a furrier. it takes stakes in companies and then agitates for improvements. when he invaded russia himself.D. U. Zephyr Management. Everest Capital. Ivan Mazalov Navis asia Navigator Non-US Feeder.5 21.1 103. Patrick Russell Ping Capital Management. loan size.” he says in a three-hour interview that ranged from ancient Greek philosophers Parmenides and Plato to foreclosures in Florida. and his team of math and physics Ph. Melissa Ko. 2 in the BloomBerg markets ranking of the 100 best-performing large hedge funds for 2010. alexander Branis. says. Alexander Branis.
0 22. Connecticut) JPMorgan Asset Management (New York) Man Group (London) Brevan Howard Asset Management (London) Paulson & Co.0 32. A fight over a shopping mall in Lawrence in the mid-1980s led Brownstein. Louis native who had moved to Lawrence late in life.0 no. Brownstein’s career suggests a restless mind. in billions Firm.D. Fancy financial engineering couldn’t save Franklin from the savings-and-loan crisis. eight months after Brownstein arrived. a state-owned French bank. (New York) Baupost Group (Boston) BlackRock Advisors (New York) Farallon Capital Management (San Francisco) King Street Capital Management (New York) Goldman Sachs Asset Management (New York) Canyon Partners (Los Angeles) Elliott Management (New York) Lansdowne Partners (London) Moore Capital Management (New York) Renaissance Technologies (East Setauket.0 27. a St. A developer wanted to build the mall in a cornfield.0 41.8 16. sources: bloomberg.0 26. 7 bestPerForMing large FUnd steve kuhn. There. Brownstein wrote up his idea and got it published in a real-estate trade journal in 1987. in its New York offices. indirectly.the WorlD’s richest heDge FunDs 100 WorLD’S LArgeSt heDge-FUND Firms assets undeR management.1 39. below Pine river capital management FunD: nisswa Fixed income 27% 2010 92% 2009 figures are as of oct. He started teaching in 1969 at the University of Kansas in Lawrence. earning his Ph.0 15. a former professor at Washington University in St. Chairman Ernest M. when he went to work trading mortgages for Caisse des Depots & Consignations.0 23.6 24. author of naked lunch.5 32. Once.0 27. “Everyone who had kids left. The article later led to an interview with William Marshall. Owning the rights was like owning on Gun Hill Road in the Bronx. Burroughs often showed up at parties at local farms with bags of pistols to distribute for target practice. Franklin was an outpost of Wall Street on the plains. hedge-fund firms. The project got Brownstein thinking about finance.0 23.1 19.3 24.0 15. Kansas. New York) $60. Burroughs brought a sack of January 2011 bloomberg markets 49 nAthAnieL WeLch/redux . Brownstein became friendly with Burroughs. he set up a new unit to buy the rights to collect interest on mortgages—the so-called servicing rights. while Brownstein and others wanted it downtown.8 20. Louis who was an executive at Franklin Savings Association in nearby Ottawa. 29 or are based on the latest available numbers. He got his bachelor’s degree from Queens College before heading west for graduate school. to mortgage trading. he made documentary films on the side and once interviewed Beat Generation writers Allen Ginsberg and William Burroughs. investors ToTal ReTuRn hatchets to throw at trees. The Office of Thrift Supervision seized it in February 1990.0 19. A big drinker.0 16. He stayed until 1992. In Lawrence.0 20. in philosophy from the University of Minnesota.” Brownstein says. He figured a downtown mall could attract a big anchor tenant and then use its lease payments as collateral for a bond that would be sold to investors to pay for the mall’s construction. hedge-fund databases. (New York) Highbridge Capital Management (New York) Soros Fund Management (New York) Och-Ziff Capital Management (New York) BlueCrest Capital Management (London) Cerberus Capital Management (New York) Angelo Gordon & Co. New York. location 1 2 3 4 · 6 · 8 9 10 11 · 13 14 · 16 17 18 19 20 · Bridgewater Associates (Westport. Franklin hired Brownstein in 1989. Fleischer built the thrift into one of the nation’s largest savings institutions partly by using mortgage-security trading to reduce interest-rate risk.
In 1996. with the help of Mok and his team of analysts. including the size of the mortgage and other attributes that even today he declines to identify. Mok started trading mortgages at Salomon in 1987. planning to do more deals for servicing rights. That was before interest rates started falling in the early 1990s. If a homeowner refinances. 1989). manager of Pine River’s Nisswa fund. The price implied that 60 percent of borrowers would refinance within one year. Most trading was in bonds backed by Fannie and Freddie loans of roughly the same size and age. and crisis always creates opportunity. A popular security in the mortgage business is the interest-only strip. He thought he could predict how each group would behave when rates fell. prompting a wave of refinancing. The first are built from mortgages insured by Fannie Mae and Freddie Mac. The trick to valuing an IO is figuring out how many borrowers in the pool are going to pay off their mortgages early. mortgages. He separated the mortgages backing the bonds into groups with similar characteristics. who wrote about the experience in liar’s Poker (W. the market for securities backed by the bigger. he says. Back then. or IO. traders use computer-driven models to predict if and when a homeowner is going to cut off interest payments with a refinancing. Principal payments go into another security called a PO that’s more attractive to conservative investors. Numbers crunched in China are sent to an 11-person team in Pine River’s office in New York. since. because they wanted to lock in gains all at once rather than risk losing interest income if borrowers refinanced. No way. after attending the same training class attended by author Michael Lewis. when many banks bailed out of the mortgagetrading business and fired mortgage experts. generally under $417. Now. Brownstein says. homeowners wouldn’t pay off their mortgages as fast as they did in 2003. Pine River Capital went so far as to open an office in Beijing in 2010 to tap a new pool of math experts. including IOs.100 the WorlD’s richest heDge FunDs mortgage bonds. Pine River founder Brian Taylor says.000 for a single-family home. the PO owner gets paid sooner and the IO owner loses all of the interest that he was due to collect. IO bonds were trading at 9 cents on the dollar. when rates were tumbling. a function that encourages lending. above sAc capital Advisors FunD: sAc capital international M 11% 2010 29% 2009 ortgage bonds. If interest rates fell. unlike in Anthony BehAr/getty imAges . “You have to really read the tea leaves to figure out if a mortgage bond is a good buy or not. For its mortgage bet.S. The two government-controlled companies own or guarantee repayment on half of all U.” Mok says. Mok watched interest rates and the yield each security paid relative to Treasury bonds to figure out whether to buy or sell. So Brownstein and Mok spend their time puzzling over prepayment speeds. In 2008. Pine River profited during the past two years by betting correctly that U. he says.” Taylor says. Brownstein has been refining the system ever Fe b r u a r y 2 0 1 1 ToTal ReTuRn 50 bloomberg markets in kansas. he thought. Many lenders were eager to sell. most of the homeowners in the pool refinanced at similar speeds. Norton. nonagency mortgages were selling for less because the mortgages were more heterogeneous and harder to model. nonguaranteed loans was just getting going.S. Then he pursued another angle. has no credit risk.W. 2 MostProFitable FUnds steven cohen. Brownstein says. Brownstein set up Structured Portfolio Management in New York in 1996. even though mortgage rates fell far and fast during both periods. Taylor opened that office in 2008. no. The firm has 10 people there doing quantitative research and software development. It’s a bond backed by the interest payments from a portfolio of mortgages. come in two variations: agency backed and not agency backed. and if you got them cheap enough. who arrived at parties carrying bags of pistols and hatchets for target practice. Brownstein saw that IOs backed by big. A trader buying securities built from agencybacked mortgages. says Kuhn. People wouldn’t refinance because. “Financial markets are prone to crisis. they could be profitable. brownstein befriended writer william burroughs.
Daniel Loeb of Third Point normally invests in stocks and bonds of companies going through mergers and restructurings. or spreads. the food producer that started a trading operation out of its effort to hedge the prices of farm products. according to a biography accompanying an article he wrote for the hedge fund Journal in February 2008.82 1. mortgage investments accounted going it alone. Kuhn says. Penney Kraft Foods AutoNation DaVita ranking is derived from public filings of the 20 top holders of s&p 500 stocks as of sept. again to trade mortgages. 13. Minnesota–based money manager EBF & Associates.” Loeb wrote. the companies bought and sold securities in order to moderate fluctuations in rates. ambrosiadou is accustomed to success in male milieus. 30.33 3.. when the market started to wobble. in Minneapolis. a website that covers hedge funds. Kuhn left Cargill in 1998 for Citadel LLC. “My wife is a good sport. ambrosiadou had filed for divorce earlier that year. Benett/getty imAges elena Ambrosiadou . He called up Taylor. started ikos in 1991 with her husband. source: bloomberg mortgage bonds plunged. uhn gets excited when talking about the mortgage market. a fellow Minnesotan. the crisis caught up to Fannie Mae and Freddie Mac. the pair ran ikos together until December 2009.54 2. where he traded convertible bonds. elena ambrosiadou. the value of their houses had fallen. she once worked in refineries for petroleum giant BP Plc and later became an 52 bloomberg markets executive for the British company. she runs the ikos FX Fund. a greek whose firm is based in cyprus. He has owned mortgage securities since 2007.83 1.35 3. “the scientific process is about building the body of knowledge independent of any one person. In 2009. Just two of the managers of the top 100 large funds are women. according to Yachtpals. a 290-foot (88-meter) computerized sailing ship built by venture capitalist tom Perkins. The U. its performance or their split. He was banished there for a year by a noncompete clause in his EBF employment contract that required him to move at least 100 miles away from the Twin Cities if he started a competing company. “Mortgage securities contributed significantly to our returns during the fourth quarter and have also performed strongly so far in 2010. a boating site.” he says. But government control of the companies means that traders like him have to watch for government programs that make it easier for homeowners to refinance.. In 2002. the market is ripe with opportunity.44 3. making it hard for traders to find arbitrage opportunities. That also helped control price differences.S. Pine River is named for the town 150 miles (240 kilometers) north of Minneapolis where Taylor has a lake house. In addition to guaranteeing mortgages. A Minneapolis native. “There weren’t a lot of nickels lying around. the cable channel that broadcasts government hearings. and offered his services. Kuhn saw opportunity. the Chicago hedge fund.C. He watches hours of C-SPAN. Sometimes he records them to watch in the evening. After the takeover. As of June. ranks No.S.41 1. they helped lift the fund 38. a chemical engineer. between various types of mortgage bonds. In 2010. Kuhn pitched Taylor on starting a mortgage fund to do some bottom fishing when the market really cracked. ambrosiadou. in a video interview in January. she paid $120 million for the Maltese falcon. when K BiggeSt hoLDingS in u. profitably the heDge-FunD industry is the college of cardinals of finance—a man’s world. took them over that September to ease concern that they would fail and cease to back $5 trillion in mortgages. ambrosiadou enjoys her performance fees. Taylor had set up Pine River in 2002 after 14 years at Minnetonka. Those who could confronted a mountain of paperwork at newly cautious banks. ambrosiadou and coward declined to comment on ikos. when coward left the firm. They named it Nisswa after another town in northern Minnesota. StocKS By heDge funDS amount held.” Taylor says. 4. In 2007. in 2009. Without Fannie and Freddie trading.07 2. one of them. he joined Goldman Sachs Group Inc. ambrosiadou said one secret to ikos’s success is a focus on the institution. a currencytrading pool that returned 30. you didn’t need to be a specialist to see that there was money to be made in mortgages. Loeb said in a letter to investors dated March 1.4 percent for the year. He switched to mortgage bonds at Piper and then took a job doing the same activity at Cargill Inc.” ambrosiadou told opalesque tV.100 the WorlD’s richest heDge FunDs 2003. Kuhn says. Value of holdings is as of Dec. aNthoNY eFFiNger Fe b r u a r y 2 0 1 1 dAve m. he earned a bachelor’s degree in economics from Harvard University in 1991 and went to work trading municipal bonds at Piper Jaffray Cos. martin coward. a cambridge University graduate in mathematics and a foreign-exchange strategist. in billions $3. Then.5 percent in the first 10 months of 2010. The collapse that Kuhn expected came in 2008. Fannie and Freddie stopped a key activity. 2010.com.83 1.82 stock 1 2 3 4 5 6 7 · 9 · Sears Holdings Nike AutoZone Motorola Citigroup Viacom J.
He started buying in September. remic is an acronym for real estate mortgage investment conduit. Loeb used securities called re-remics for about half of his mortgage play.21% 4. send an e-mail to bloombergmag@bloomberg.Net 54 bloomberg markets Fe b r u a r y 2 0 1 1 . Wall Street has been repackaging the once-AAA-rated bonds into new trusts that have senior and junior securities.” Soros said. according to the letter. he says.” Loeb had about 6 percent of Third Point’s assets in bullion in November. That makes them cousins of collateralized debt obligations. It’s a trust. onshore and offshore funds were combined for several funds. Now. For a handful of other firms.net or type mag <go>. To ease that burden. 29 from its close on Sept. asset flows into account.performance numbers into acverse: 20 percent.18% exchange-traded gold funds. ESTIMATED ASSETS. incentive fee. says the emergency in his market has passed. lost their rating. fee to derive the profit figures. Remics also tanked during the credit crisis as the mortgages backing them went into default. we had returns for only one or two funds. according to a letter sent to investors in August. other managers would do well to pay attention to the pronouncements of the pontificator-in-chief. on Nov. according to Third Point investors. Loeb is betting on the riskier junior slices. net of fees. Given his performance in 2010. helping to trigger the larger financial crisis. the numbers were difficult to verify.is greater than its previous highmately what the assets were at est value. Loeb also bet big on gold.250 an ounce.38% $330 $445 Macro Relative value 8. Brownstein. Unless the information came from Bloomberg or the hedge-fund firm itself. and banks and insurers had to put up more capital to cover potential losses. shares of mining companies or both. aeFFiNger@BloomBerg. the least risky ones. we NAME: assets and multiplied the STORY current used the latest figures available result by each fund’s performance DESIGNER:patti prior to that date.) We hedge funds typically keep a low profile. the bundles of mortgage bonds and other debt whose value plunged in 2007. backed by thousands of mortgages. 15. hoping they will pay him a fat yield—as much as 20 percent. hoW We cruncheD the numBerS our rankings oF hedge-fund managers are based on data compiled by Bloomberg data specialist anibal arrascue and information supplied by hedge-fund research firms. including investors and other fund databases. anthony eFFinger is a seNior Writer at BloomBerg markets iN PortlaND. according to filings with the SEC. buoyant on a darkening November afternoon. we have three lists of top performers: funds with assets greater than $1 billion. As the credit crisis eased. there are opportunities for hedgefund managers willing to drill deep down into mortgage bonds and find value. if a fund didn’t reour ranking of the most-profitport its incentive fee. spurred by a U.9 percent as of Oct. Gold was the biggest position for George Soros and Paulson in September and the second-biggest position of commodity investor Paul Touradji. those bonds rose in value. although we attempted to get returns for the larger class of each fund. We couldn’t obtain fund assets or returns for several of the biggest hedge-fund firms by assets. kBUrtoN@BloomBerg. hedge funds and investors. count because managers get paid Using the gross returns. we tried to verify it with other sources. their 2010 performance weren’t the asset numbers didn’t take included in this ranking. the biggest gold bet he’s ever made. Gold was up 8. when the metal was trading at $1.S. the returns we obtained were NOTES: management fees aren’t included.74% 7.” Brownstein says. Remics are divided into tranches according to risk and sold to investors. a popular play for hedge-fund managers in 2010.8 trillion invested in hedge funds. Gold appeals to investors worried about the value of paper money. Each tranche becomes a separate mortgage bond.100 the WorlD’s richest heDge FunDs for about one-fifth of Third Point’s assets. government report saying Washington can’t sustain the deficits it’s been running. Gold is always popular during times of crisis. contributing to Loeb’s 25 percent return. IN BILLIONS AVERAGE 2010 RETURN NEW MONEY 10. bloomberg rankings raNkiNgs@BloomBerg. a nonpartisan group devoted to strengthening Canadian foreign policy. Many AAA remics. Source: Hedge Fund Research to write a letter to the editor. They invested in Of the $1. we only when the value of their funds were able to reconstruct approxi.Net katherine burton coVers heDge FUNDs at BloomBerg NeWs iN NeW York. “The big negative is that too many people know this. Funds that didn’t exthe start of the year. 29. We calculated profits we assumed they were used for for each fund by dividing the net the day-to-day operations of figure by 100 percent minus the the fund. we used the able funds took 2008 and 2009 average of all the funds in our uni. “There are a lot of hedge funds who are pretty heavily exposed. funds with assets of $250 million to $1 billion and emergingmarket funds with at least $100 million under management. Soros said at a meeting of the Canadian International Council. 30. “The crisis was when housing prices were accelerating out of control.Net $461 $533 Event driven Equity hedge Asset ﬁgures are as of Sept.subtracted original assets from ed on oct. 30. returns are as of Nov. according to the August letter to investors. (since we ceed this “high-water mark” in didn’t have inflows or outflows. assets reached record levels in event-driven and macro funds. in a few cases. the FILE:spmstrat7 SIZE: SECTIONS: figures are for the 10 months end. that pays interest. this year. 1.