The computer geeks are taking over Wall Street. During a disappointing year that saw the average hedge fund manager lose money, elite quantitative traders stood out in 2018 from the rest of the trading crowd. More than half of the 20 highest-earning hedge fund managers and traders in 2018 were associated with computer-driven algorithmic trading.
Jim Simons, the most famous quantitative trader ever, naturally led the way, earning $1.6 billion. He founded Renaissance Technologies, a hedge fund firm that now manages $60 billion, and still plays an important role there even though he retired from day-to-day operations in 2010.
The hedge funds Renaissance manages for outside investors performed well in 2018. For example, the Renaissance Institutional Equities fund last year returned 8.5% and the Renaissance Institutional Diversified Global Equities fund returned 10.3%. Simons’ earnings were further driven by Renaissance’s Medallion fund, a $10 billion black-box strategy that only invests money belonging to Simons and his Renaissance partners and employees.
The hedge fund industry had a miserable year in 2018. The average hedge fund manager returned -4.07%, according to HFR. That is slightly better than the U.S. stock market, which returned -4.38% last year. In total, the 20 highest-earning hedge fund managers and traders made a combined $10.3 billion in 2018.
That’s a big number, but it is still the lowest such earnings figure since the financial crisis. In 2015, another weak hedge fund year, Forbes reported that the 20 highest-earning hedge fund managers and traders made $11.4 billion, and in 2011 they made $11.7 billion.
Forbes includes in its analysis hedge fund managers and traders who now mostly or even exclusively manage their own money, and some of them can be found in the top 20 highest earners of 2018. Michael Platt’s BlueCrest Capital Management, for example, returned all outside capital to its clients in 2015. Since then, BlueCrest’s trading activities have performed very well, and in 2018 the firm returned 25% net of all expenses. Platt earned an estimated $1.2 billion last year.
Ray Dalio’s Bridgewater Associates, the world’s biggest hedge fund firm, with $160 billion under management, posted mixed results in 2018. Bridgewater’s investment process is data-driven, searching for economic and other signals. The firm does perform traditional fundamental analysis before turning its research into trading algorithms.
Its big Pure Alpha hedge fund returned 14.6% net of fees in 2018. But Dalio’s important All Weather Fund, in which he is heavily invested, was down by about 6%. Dalio earned an estimated $1 billion in 2018.
Ken Griffin used quantitative and fundamental trading techniques to help build Citadel into a $30 billion hedge fund firm. He had a solid year in 2018, continuing a terrific run that has gone on ever since the financial crisis almost destroyed his him.
Citadel’s flagship hedge fund returned 9.1% last year. Its other hedge funds returned between 6% and 9% net of fees. Griffin earned an estimated $870 million last year.
John Overdeck and David Siegel have built their quantitative trading firm, Two Sigma Investments, into one of the world’s biggest hedge funds. Its funds did well in 2018. For example, Two Sigma’s Absolute Return fund returned 11% and its Compass fund returned 14% net of fees. Overdeck and Siegel each earned an estimated $700 million in 2018.
Overdeck and Siegel met when they both worked at D.E. Shaw early in their careers. The quantitative trading firm was founded by David Shaw, a former computer science professor at Columbia University.
He took a step back from managing the firm’s operations, but remains involved in its success. D.E. Shaw now manages some $50 billion. It’s big Composite Fund returned 11% net of fees last year. Shaw earned an estimated $500 million in 2018.
Israel Englander is not known as a quant. He founded Millennium Management, a $35 billion hedge fund firm known for its multi-manager strategy that includes dozens of teams using various styles to trade all sorts of assets. Still, a big part of Millennium’s success has been is its WorldQuant unit, a quantitative trading outfit. Last year Millennium’s hedge fund returned 4.8% net of fees and Englander earned an estimated $500 million.
To determine the highest-earning hedge fund managers and traders of 2018, Forbes examined hedge fund returns and worked to understand the fee and ownership structure of a wide array of money management firms. Hedge fund firms generally charge management fees of 2% and performance fees that give them 20% of the trading profits, but we found all sorts of variations on this theme.
In addition, our earnings figures include the personal gain or loss of each manager’s interest in their funds. Our figures are pretax, account for firm expenses and profit-sharing arrangements, and exclude gains or losses stemming from ownership in the investment firms themselves or from investments held outside of the managed investment pools.
-Nathan Vardi Forbes Staff
– Antoine Gara Forbes Staff
– Additional reporting by Jennifer Wang