In what was an abysmal year for most hedge funds, three investing icons successfully pulled their weight and generated outsized returns amid an otherwise dreary landscape.
Last week we reported that after correctly predicting the "significant risk of a correction", quant giant Renaissancemade an impressive 8.5% return in 2018 despite a 2.1% drop in December, solidly outperforming the broader market.
It wasn't just the secretive fund founded by chain-smoking codebreaker Jim Simons that blew past its competition last year. On Sunday, Bloomberg reported that Bridgewater's flagship Pure Alpha fund rose a remarkable 14.6%. This was no small feat for Bridgewater which also happens to be the world's biggest hedge fund with $160 billion in unlevered assets, and came at a time when hedge unds on average lost 6.7% in 2018, according to the HFRX Global Hedge Fund Index, as market trend and momentum both collapsed.
A just as impressive record is that since its inception in 1991, Pure Alpha Strategy has generated an average annualized return of 12% after fees, a track record which some have wondered if it is too good to be true.
And yet in a bizarre twist at the start of 2018, Bridgewater's Ray Dalio said on January 23 that "If you're holding cash, you're going to feel pretty stupid." Ironically, cash ended up being the best performing assets, while virtually every other asset class posted negative returns in 2018, making those holding anything but cash feeling pretty stupid. Which means that at some point between January and December, Ray Dalio quietly moved out of most assets although "surprisingly" he never made that shift public.
In any case it wasn't just Simons and Dalio: according to a Monday note from Bloomberg, the flagship fund of another computer scientist, David Shaw's, D.E. Shaw, also generated double-digit returns, gaining 11.2% last year.
The New York-based investment firm’s Composite fund invests across multiple strategies and is the company’s largest and longest-running. It returned 3.5 percent last month, the person said, as the S&P 500 Index sunk 9.2 percent.
And in yet another indication that Madoff was an amateur, DE Shaw's composite fund, which has about $14 billion in assets, amazingly hasn’t had a losing year over the past decade. In 2017, it gained 10.3%, the Bloomberg source said.
D.E. Shaw was founded by computer scientist David Shaw and has more than $50 billion in assets under management, including $28 billion in hedge funds. Its Composite fund has largely been closed to new investors since mid-2013, but the group continues to build out new strategies and products. Recent areas of development have included private credit opportunities in Europe and renewables investing.
Some trivia: when DE Shaw was just two years old, a largely unknown 26-year-old took a job at D.E. Shaw and became one of the company's vice presidents in just four years; he was tasked with researching new business opportunities on the rapidly growing Internet, which was held tremendous potential in the early 1990s. That youngest made a list of 20 products he could sell online, and decided that books were the most viable option. When he couldn't get D.E. Shaw on board with the idea, he decided to branch out on his own.
A little under three decades later, that "relatively unknown" person is now the world's richest person.