The year 2023 turned out to be a fruitful one for hedge funds billionaires. The hedge fund industry as a whole generated gains worth $218 billion after fees last year, and roughly a third was produced by the world’s 20 most profitable firms, which manage just shy of a fifth of the industry’s assets, according to a report by LCH Investments, a fund of hedge funds, released yesterday (Jan. 22).
A hedge fund is a special type of asset management firm that pools funds from clients and invest them using a variety of risk-minimizing strategies with the goal of seeking maximum returns. As the money manger, the firm usually takes a flat management fee plus a cut of clients’ earnings.
Every year, LCH publishes a ranking of the world’s top 20 hedge funds with the highest gains since inception. (Therefore the list has a tendency of featuring funds with a longer history and larger asset pool.) In 2023, Ken Griffin’s Citadel, which manages $56.8 billion in assets, took the crown with a total gain of $74 billion since its founding in 1990. Citadel is followed by David E. Shaw’s D.E. Shaw, which has earned $56.1 billion since 1988 and currently manages $43.8 billion in assets. Izzy Englander’s Millennium Management, founded in 1989, has also gained $56.1 billion since inception and currently manages $61.9 billion. Ray Dalio’s Bridgewater Associates trailed closely behind the top three firms with a total gain of $55.8 billion since its founding in 1975. It was in the second place on last year’s list. After recording a $2.6 billion loss in 2023, it’s now No.4.
One notable firm on this year’s list is Bill Ackman’s Pershing Square Capital Management, which re-entered top 20 for the first time in nine years with a total gain of $18.8 billion since 2004. Pershing Square dropped off the LCH list in 2015 after suffering deep losses from its investments in consumer goods companies like Procter & Gamble, JCPenney and the multi-level marketing company Herbalife Nutrition. The firm’s large bets in the hospitality and retail sectors, including Chipotle, Hilton and Lowe’s, have paid off handsomely in recent years, pushing it back to LCH’s top ranks.
Of the top 20 firms, Chris Hohn’s The Children’s Investment (TCI) Fund Management was the most profitable in 2023, earning $12.9 billion in yearly return on its $50 billion in assets under management. TCI is trailed by Griffin’s Citadel, which earned $8.1 billion last year, and Norwegian billionaire Ole Andreas Halvorsen’s Viking Global Investors, which earned $6 billion on $30.5 billion of assets under management.
Measured by the percentage return on investments, the top 20 firms collectively gained 10.5 percent in 2023, outperforming the industry average of 6.4 percent, according to the LCH report.