The hedge fund industry may be mired in performance woes and closures, but you wouldn’t know it from the immense earnings that the top hedge fund managers pulled down in 2016; even when some of them aren’t actively managing their firms anymore. 1,057 hedge funds were shuttered in 2016, the most since the financial crisis led to 1,471 closures in 2008. Among the firms to shut their doors in 2016 was Richard Perry‘s Perry Capital, one of the 140 biggest and most famous activist hedge funds (it still held a small portfolio at the end of 2016, but had sold off the majority of its holdings), and Eric Mindich‘s Eton Park has followed suit this year.
Despite the closures, hedge funds didn’t actually bleed assets under management, which rose to $3.02 trillion, thanks in part to greater than 5% gains for the hedge fund industry in 2016. While the gains helped overcome redemptions, they were still a far cry from the 12% gains in the broader market last year.
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The 25 top earning hedge fund managers did see their total earnings slide in 2016 compared to a year earlier, though I suspect you won’t be feeling sorry for them any time soon. They pulled in $10.9 billion last year, or about $436 million each on average, down from $12 billion in 2015 according to Forbes. In this article we’ll take a look at the top 5 on that list and check out their performance and top picks, beginning on the next page.
5. Ken Griffin, Citadel Investment
2016 Earnings: $500 million
Top Pick at the End of 2016: Alphabet Inc (NASDAQ:GOOGL)
First on our list is the venerable Ken Griffin, who earned a $500 million payday in 2016. Griffin’s hedge fund firm Citadel Advisors delivered 5% returns in 2016, underperforming the market but about in line with the broader hedge fund industry. Nonetheless, it was a down year for the fund, which has averaged 19% annual returns since inception.
While Citadel has larger options positions in several stocks, its largest long position at the end of 2016 was in Alphabet Inc (NASDAQ:GOOGL), with it being valued at $681 million. Alphabet has slumped heavily in recent days due to an advertising controversy involving its YouTube video platform, which could see the service lose up to $750 million in revenue this year and cut margins in the future, depending on the steps Alphabet needs to take to remedy clients’ concerns about where their ads are ending up. While it’s a big blow to YouTube in and of itself, it’s not a huge blow to Alphabet Inc (NASDAQ:GOOGL), which had nearly $90 billion in revenue in 2016. Alphabet shares are still up by 7% in 2017.
4. David Tepper, Appaloosa Management
2016 Earnings: $750 million
Top Pick at the End of 2016: Allergan plc Ordinary Shares (NYSE:AGN)
David Tepper scored $750 million in earnings last year, ranking fourth on the list of top earning hedge fund managers. Appaloosa Management had a solid but unspectacular 2016, underperforming the market with returns in the mid-single digits. Like some other peers who have attained tremendous long-term success, it appears that Tepper may be gearing his fund up for an eventual switch to a family office, having returned money to shareholders for several years now. Tepper now manages just $16.5 billion in assets, the majority of which are owned by himself and his employees.
Appaloosa’s top equity pick at the end of 2016 was Allergan plc Ordinary Shares (NYSE:AGN), which it had more than twice as much money ($895 million) invested in than any other stock after a 250% hike to its position in the fourth quarter. Allergan plc Ordinary Shares (NYSE:AGN) has gained 14% this year despite investor pessimism ruling the healthcare space at the moment, due to President Trump’s repeated comments on drug pricing, in which he has said that prices will come “way, way, way down” and that it would happen “fast”. Of course, he also said Obamacare would be dismantled and we know how that turned out…
3. Ray Dalio, Bridgewater Associates
2016 Earnings: $1.4 billion
Top Pick at the End of 2016: Apple Inc. (NASDAQ:AAPL)
Ray Dalio came up just short of the top earners, pulling in a mere $1.4 billion last year. Bridgewater’s Pure Alpha had modest 2016 net of fee returns of 2.4%, while its All Weather and Pure Alpha Major Markets funds did much better, returning 11.6% and 12.9% respectively. The $160 billion hedge fund’s founder and current co-CIO ranked as the top earner back in 2011. He’s scheduled to release a book through Simon and Schuster later this year dubbed Principles by Ray Dalio.
Bridgewater’s top stock pick at the end of last year was Apple Inc. (NASDAQ:AAPL), though it held several much larger positions in index funds, which is why its Apple bet accounted for just 0.45% of the value of its massive 13F portfolio. Apple is enjoying a great start to 2017, gaining 24% and pushing to all-time highs. Its market cap has also crested $750 billion, after falling below $500 billion less than a year ago. There have been mild rumblings that Apple Inc. (NASDAQ:AAPL) could buy Walt Disney Co (NYSE:DIS), though nothing concrete has emerged as of yet.
T-1. Michael Platt, BlueCrest Capital
2016 Earnings: $1.5 billion
Top Pick at the End of 2016: MGM Resorts International (NYSE:MGM)
BlueCrest Capital co-founder Michael Platt had a huge 2016, after his fund (which is actually a family office now) returned 50% net of costs for the year, thanks primarily to bets on interest rates as opposed to equities. On the equities front, the firm’s top pick at the end of December was MGM Resorts International (NYSE:MGM), which has dipped by nearly 6% in 2017.
It was a weak February for casino operators on the Vegas Strip, as gaming win declined by just under 5% for the month. However, revenue in Macau jumped by 18% during February. MGM Resorts International (NYSE:MGM) is also looking further east, to Japan, where it has said that it would be willing to spend up to $10 billion to build a casino. However, rivals like Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) and Las Vegas Sands Corp. (NYSE:LVS) are also intent on winning the rights to build a casino in the country.
T-1. Jim Simons, Renaissance Technologies
2016 Earnings: $1.5 billion
Top Pick at the End of 2016: Mastercard Inc (NYSE:MA)
Jim Simons sits atop the list as the co-top earning hedge fund manager, despite having retired from his active role at $36 billion quant fund Renaissance back in 2010. Simons, who now acts as the firm’s Chairman, pulled in $1.5 billion last year thanks to the great performance of RenTech, which he founded back in 1982. The firm’s International Equities fund delivered 21.5% net-of-fees returns in 2016, in keeping with RenTech’s exceptional returns since inception.
The fund’s top pick at the end of 2016 was Mastercard Inc (NYSE:MA), in which it owned 5.64 million shares valued at over $582 million. The stock has been one of the fund’s top-3 picks since the middle of last year, during which time it’s returned 27%. Dozens of state lawmakers have recently called on Mastercard Inc (NYSE:MA) and rival Visa Inc (NYSE:V) to stop accepting payments from hate sites like tightrope.cc, which sells Nazi paraphernalia.