Hedge Funds Rake in Record Profits as Markets Roar Back
By April Fowell
- In 2023, the top 20 fund managers collectively generated $67 billion in gains for investors, surpassing the $65 billion earned during the pandemic-era boom in 2021.
- LCH Investments' research indicates that the fund management sector as a whole saw overall benefits of $218 billion after fees in 2023.
- Despite managing less than a fifth of the industry's assets, the top funds, constituting only 19%, contributed to about one-third of the total yearly earnings, with notable performers including Citadel, Viking, and TCI.
20 top fund managers earned $67 billion in gains for investors in 2023, compared to $65 billion during the pandemic-era boom in 2021, according to research released on Monday by LCH Investments, a hedge fund.
Based on estimates from LCH Investments, the fund management sector saw benefits of $218 billion overall after fees.
Despite managing fewer than a fifth (19%) of the industry's assets, the top funds, those that have fared best in dollar terms since their founding, accounted for around one-third of yearly earnings last year.
Ken Griffin's Citadel, Andreas Halvorsen's Viking, and Christopher Hohn's TCI were among the top achievers.
According to Brad Amiee, director and head of research at LCH Investments, the stock market's 2023 "fantastic run" helped the top funds. But several also shown particularly astute stock selecting techniques, he continued.
"You could argue that maintaining a long-biased portfolio of high-quality positions and keeping things long-biased has been the right approach, given how difficult it is to short," Amiee told the Financial Times.
The top-ranked fund, TCI, reported $12.9 billion in gains for investors at year's end, up 33% compared to the S&P 500's 24% increase.
Among its biggest investors were Alphabet, Visa, National Railway of Canada, & Electric General.
After earning a record-breaking $16 billion in 2022, Citadel, which came in second in 2023, gained $8.1 billion in earnings. With profits of $74 billion since its founding, it is the most profitable hedge fund in history.
Additionally, the analysis revealed that the top 20 funds had profited by a total of $755.4 billion since its founding, far more than the $655.5 billion in managed assets.
What You Need To Know About a Hedge Fund
A hedge fund operates as a limited partnership structure, with individual investors pooling their capital under the supervision and management of fund managers. Distinguishing themselves from traditional investment vehicles like mutual funds, hedge funds are characterized by a more exclusive structure that caters to sophisticated investors.
In a hedge fund, the fund manager has the responsibility of overseeing the pooled capital and implementing strategic investment decisions to generate returns for the investors.
Notably, hedge funds are often recognized for their ability to pursue a broader range of investment strategies, including those that may be deemed riskier or unconventional compared to traditional investment approaches. This flexibility allows hedge funds to explore diverse asset allocations, employ leverage, and utilize various financial instruments to potentially enhance returns, albeit with a higher level of risk.