Computer-based hedge funds among best performers for first time
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For the first time, computer-based hedge funds have been included on a list of the 20 best performers of all time, showing that technology has changed the industry beyond all recognition.
The new standing for such hedge funds also shows that the days of traditional human investing could be replaced by a new era within which technology-linked funds go head-to-head with standard ones.
The 20 best-performing hedge fund managers of all time index, which is compiled on an annual basis by LCH Investments, the fund of hedge funds overseen by the Edmond de Rothschild group, included DE Shaw, Citadel and Two Sigma for the first time. Each of these three funds make use of systematic strategies which trade using computer algorithms.
The index tracks the total amount of dollars that have been earned for investors since the fund first began trading. It ranked DE Shaw, which currently oversees assets worth $27 billion, in third place, while Citadel, owned by Ken Griffin, was included on the list at number five. Meanwhile, the other technology-linked fund, Two Sigma, came in 20th place on the index.
With the assent of these three funds on the list, a number of well-known hedge funds have dropped off, including the former number 20, Lansdowne Partners, which lost 15 per cent from its main fund across the course of last year. Also dropping off the list were the Highfields funds, owned by Jonathan Jacobson and Maverick, owned by Lee Ainslie, while others remained on the list but in a far lower position, such as Paulson & Co, which fell six places to 13th after losing $3 billion in 2016.
The three newly included funds have brought in around $90 billion for their investors over the last decade, the index showed, highlighting the ongoing growth potential of this form of trading. Indeed, the very fact that the LCH list is now including these systematic funds highlights the rising prevalence of quantitative trading strategies.
Rick Sopher, chairman of LCH Investments, told the Financial Times: "The increasing capabilities of technology-based investment systems is evident in these results. These systems are being used by many of the most successful investment firms to provide alternative data sources, processed investment analysis and artificial intelligence.”
First place on the list was the biggest hedge fund in the world, Ray Dalio’s Bridgewater, which held its position from last year, having made $49.4 billion in net gains since it was created in 1975. Second place was occupied by Soros Fund Management, owned by George Soros and boasting $41.8 billion worth of gains since its creation in the 1970s, despite an overall net loss of $1 billion in 2016.
Mr Sopher concluded that 2017 was looking bright for hedge funds as a whole: "Although 2016 was a difficult year overall for active managers, including those which had performed strongly in the past, results improved sharply toward the end of the year. This, combined with the continuing trend to lower fees, should improve the prospects for hedge fund managers to generate positive returns after fees for their investors.”