The top 10 most successful hedge fund managers of all time

Pritesh Ruparel
December 8, 2021 | Hedging Insights

The top 10 most successful hedge fund managers of all time

With bespoke power suits, arcane knowledge of capital markets, and bonuses so big you could mistake them for phone numbers, hedge fund managers are shrouded in mystique.

 

In this post, we look at ten of the biggest industry names of all time, and examine what they’ve done to secure their place in the annals of hedge fund history.

1. The OG: Jesse Livermore

Livermore achieved legendary status at a time when the term ‘hedge fund’ hadn’t even been coined.

 

Born in 1877 to poor, working class parents, he got his start aged 14, when he landed a job transferring stock prices from the ticker tape to the quote board for the princely sum of $5 a week (approximately $152 in today’s money).

 

Barely a year later, he earned his first trading payday: $3.12 he made by betting $5 on railroad stocks. By the time he turned 16, he was earning 40 times his salary from trading, so he quit his job to trade full-time.

 

Livermore pioneered technical analysis, the use of past market data to forecast future prices, and popularised options. His analytical prowess and instincts were so dead-on that he was banned from trading at many brokerages.

 

Legend has it that, during the panic of 1907, JP Morgan himself asked him to temporarily refrain from short selling — borrowing assets he believed would go down in value and pocketing the difference — to give the stock market some breathing room. Livermore, the story goes, agreed and went on to add a whopping $2 million to his net worth when the stock exchange bounced back.

 

Sadly, Livermore lost money just as quickly as he made it — including the $100 million ($1.6 billion in today’s money) he netted from the 1929 Wall Street crash — and died penniless in 1940. But traders still study his principles and trading philosophy today.

2. The Magus: William Delbert Gann

Could observing constellations and planetary movements help you forecast what will happen on the capital markets?

 

Gann certainly thought so.

 

The first of 11 children, he left school at a very young age to help out on his family’s farm and got most of his education from the Bible and the cotton warehouses he visited with his father. Eventually, he got a job at a small firm while studying business at night school, after which he moved to New York City to work on Wall Street.

 

Within a year, Gann had opened his own firm. Throughout his lifetime, he’d also publish several newsletters, books, and courses, including a science-fiction novel, called The Tunnel Thru the Air, which contains some of his ideas about trading.

 

Many of the forecasting tools Gann developed — like the eponymous Gann Angles and Gann’s Cube, and the Spiral Chart — are somewhat esoteric, mixing geometry, astronomy, ancient mathematics, and even astrology.

 

For this reason, Gann is like Marmite in trading circles. Some think he’s a genius, while others dismiss his work as being questionable, to put it generously.

 

The controversy also extends to his success — or lack of it — on the trading floor.

 

In a 1909 article, Richard Wyckoff — at the time a highly respected Wall Street figure — describes seeing Gann earning 1000% return on investment within a month. Gann is also credited with predicting the 1929 Wall Street crash with almost pinpoint accuracy nearly a year before it happened.

 

But his detractors claim that reports of his vast fortune are largely exaggerated, and that the bulk of his income came from selling courses, not trading.

3. Mr McNugget: Ray Dalio

The founder, co-chairman, and co-chief investment officer of Bridgewater Associates — a hedge fund that counts pension funds, foundations, foreign governments, and even central banks among its clients — Dalio had an estimated net worth of $15.6 billion in 2020 and was ranked 69th richest person in the world.

 

Dalio spent most of his adolescence working as a caddy at an exclusive golf club. Here, he made friends with the son of a high-powered executive who offered him his first Wall Street job.

 

But it wasn’t just this lucky encounter that put him on the path to success. From a very young age, he had a knack for picking winning stocks.

 

When he was 12, he used $300 of his golf club earnings to buy shares in Northwestern Airlines and soon tripled his investment.  By the time he was 16, his portfolio was worth thousands.

 

Dalio is responsible for popularising many now common techniques, including risk parity — a strategy where capital is allocated based on risk-weighted calculations — and currency overlay, where currency risk is outsourced to a specialist firm.

 

But his biggest claim to fame is creating the hedging instrument that made the Chicken McNugget commercially viable.

 

At the time — this was the early 1970s — economic stagflation and a spike in demand for chicken meant McDonalds couldn’t mass produce the Chicken McNugget, because the cost of raw materials was impossible to predict.

 

Then, Dalio, who had just started Bridgewater Associates from his bedroom and had only two clients — McDonalds and, in one of those incredible twists of fate, a chicken producer — had an epiphany. A chicken was just a baby chick you added corn and soymeal to. So it followed that, if you could predict the price of corn and soymeal, the price of chicken would stabilise.

 

Dalio engineered a win-win situation. He created a forward contract in which chicken producers agreed to buy a set number of tonnes of corn and soymeal at an agreed price at a certain date.

 

Corn and soymeal producers could plan production ahead of time. Chicken producers’ biggest variable costs became fixed. And you can now go to the nearest McDonald’s outlet and treat yourself for less than a fiver.

4. The Stock Whisperer: Sharon Bentley-Hamlyn

Originally trained as an opera singer, Bentley-Hamlyn decided she preferred the thrill of the trading floor to the glitz and glamour of the stage. So she studied business and landed a job as an analyst in Crédit Commercial de France’s mergers and acquisitions division.

 

Bentley-Hamlyn was soon making a name for herself. But she also developed some strong opinions along the way. Where many traders look to generate returns by going short — betting that an asset’s price will decrease over time — Bentley-Hamlyn was convinced that betting on companies’ growth leads to better returns in the long term.

 

In 2006, she founded Aubrey Capital Management, a hedge fund that puts this philosophy into practice to resounding success.

 

By investing in businesses that have at least 15% yearly growth, the firm has consistently outperformed its benchmarks, delivering returns of 132% over five years.

 

Bentley-Hamlyn herself is rated AAA by fund manager search engine Vadevalor — a rating you can only get if you’ve outperformed your benchmarks for at least 10 years.

5. The Wednesday Winner: George Soros

These days, Soros is best-known for his philanthropy… and for being at the centre of a series of increasingly outlandish conspiracy theories. But for almost 45 years, he was the founder and chairman of Soros Fund Management and one of the most hard-nosed traders on the floor.

 

Born in Hungary in 1930, Soros lived through horrors of World War II before moving to the UK, studying at the London School of Economics, and getting a job as a clerk at a merchant bank. He then moved to New York City, where he worked as a trader at various firms before starting his own in 1970.

 

As a trader, Soros often took aggressive short positions.

 

When he realised the UK’s continued membership of the European Exchange Rate Mechanism was unsustainable, for instance, he bet $10 billion against the British Pound.

 

When, on 16 September 1992 — a day known as Black Wednesday — the UK government announced it was in fact leaving the mechanism and the Pound nosedived, Soros reportedly raked in $1 billion in just a few hours.

6. The Methodical Trader: Corinna Xiao

An AAA-rated, award-winning trader, Xiao has been leading Allianz’s Taiwan equity team for 12 years. A master of business administration graduate, she started her career as an equity researcher before joining Allianz as an analyst and rising through the ranks.

 

Xiao’s approach is based on two main pillars.

 

Firstly, she and her team build a model portfolio which they refine based on their analysis of fundamentals like risk/reward, current market conditions, and historical returns.

 

With this foundation in place, she then looks for underperforming stocks with growth potential, and finds ways to exploit market inefficiencies.

 

The strategy has paid dividends.

 

Over the past 5 years, Allianz Taiwan has consistently achieved above-average growth. Xiao herself has an impressive average total rate of return of 221.25%.

7. Trading on the Edge: Diana Amoa

An Oxford University graduate and Rhodes scholar, Amoa invests primarily in green and sustainable bonds in emerging markets, bringing in billions in returns for her investors.

 

Because emerging markets tend to have less developed legal frameworks and less stable political climates than more mature markets like the EU, US, or UK, these investments are higher risk. But the potential returns are just as high.

 

Amoa offsets risk by conducting thorough macroeconomic analysis. This means she looks at the country’s economy as a whole, including unemployment rates, how much disposable income people have, consumer demand, and the rate at which the cost of living is increasing.

 

When evaluating her investments’ sustainability credentials, she also enriches her analysis with alternative data — data that isn’t available through traditional channels like financial intermediaries.

8. The Quant King: James Simons

What do you do when you’ve reached the pinnacle of your career as a mathematician and military code-breaker?

 

For James Simons the answer was dead simple — give yourself a bigger, bolder challenge. And for him that meant going into business as a trader at the ripe old age of 40, with zero experience or industry contacts.

 

Simons’ career got off to a rocky start. Aged 14, he was demoted from stock boy to floor sweeper because he could never remember where the inventory was.

 

But this was just a bump in the road to success. Simons would go on to earn a doctorate from Berkeley, develop important mathematical theories, win multiple academic awards, and become a master code-breaker during the Vietnam War.

 

Despite being an accomplished mathematician, it didn’t occur to him to apply mathematics to trading at first. But he soon realised he could use it to predict where the markets would move.

 

Today, his trading strategy is based exclusively on quantitative analysis — using mathematical and statistical models to understand market behaviour — which is why he’s known as the Quant King.

 

Simons’ strategy has generated an impressive 66% per year returns since 1998, and has earned him the title of world’s greatest investor.

9. The Game-Master: Kenneth Griffin

In January 2021, the world watched rapt as a group of users on a subreddit called r/WallStreetBets inflicted $19.75 billion in losses on Wall Street hedge funds.

 

Some users had decided that a company called GameStop — a brick-and-mortar video game retailer — was worth investing in. But hedge funds were convinced that, because it’s a physical retailer, GameStop was inevitably doomed. So they started shorting its stock: selling shares they’d borrowed thinking they could buy them at a lower price later and pocket the difference.

 

Except this didn’t happen. r/WallStreetBets users’ trading activity kept pushing up the share price until it hit a record $483 a share. This triggered a short squeeze. The hedge funds had to put their money where their mouth was and buy the shares they’d shorted for significantly more than they’d sold them for, which caused them to start haemorrhaging money.

 

Eventually, RobinHood, the platform where most of the trading activity was happening, restricted GameStop share purchases, and the madness ended.

 

So what does this have to do with Kenneth Griffin?

 

Well, RobinHood gets a significant chunk of its revenue from Citadel — a hedge fund Griffin founded, owns an 85% stake in, and is CEO and co-chief investment officer of.

 

But while Griffin’s name will always be inextricably linked with the GameStop debacle, that doesn’t take away from his prowess on the trading floor.

 

By the time he was mid-way through his studies at Harvard. Griffin was already making thousands on the stock exchange. Aged 19, he convinced his grandmother, his dentist, and others to invest $265,000 with him, and promptly made a killing on Black Monday, when the Dow Jones Industrial Average lost 22% of its value in a single day.

 

Griffin continues to deliver outsize results for his investors to this day, earning big returns even when the markets were down.

 

He has also amassed a $21 billion personal fortune, including an $800 million art collection and homes worth $1 billion.

10. The Chairman: Paul Tudor Jones

Philanthropist. Conservationist. Former chairman of the New York Stock Exchange.

 

But first and foremost, a smart trader with a knack for spotting patterns others miss, and, critically, trusting his colleagues’ instincts.

 

Jones got his start trading cotton futures and commodities, before founding his own firm aged 26. Investors recognised his obvious talent, and big names like Dunavant Enterprises, one of the world’s largest cotton merchants, entrusted him with funds even though he was still a relatively unknown quantity.

 

Over the next few years, Tudor honed his craft, marrying broad diversification with event-driven strategies — that is, exploiting situations that might affect a stock’s worth — and technical analysis.

 

But what sealed his reputation was his decision to trust his colleague Peter Borish’s instincts.

 

Borish, Jones’ right-hand man, mapped out the 1987 market and concluded its circumstances were very similar to those preceding the 1929 crash. Jones took several large short positions based on Borish’s findings. And when the market did eventually crash, he tripled his money to the tune of $100 million.

 

In the new millennium, Jones mellowed somewhat, taking a conscious decision to trade more conservatively. But his firm continues to deliver above-average returns for its investors to this day.

Wrapping up

There’s no middle road with hedge fund managers. They’re either portrayed as rockstars or as larger-than-life arch-villains plotting from their McMansions.

 

But the truth is that what we see in the media is barely the tip of the iceberg.

 

Trading is risky, and it takes a lot of hard work to make a success of it. You need an analytical mind, a keen eye for detail, and nerves of steel.

 

And, yes, a ruthless streak always helps.

 

After all, they do say fortune favours the brave.

High Risk Investment Notice

 

Trading in leveraged financial instruments such as Options or other financial derivatives, carries a high level of risk and may not be suitable for all investors.  Investors who make use of these financial products run the risk of substantial capital losses which may exceed your initial deposit. Assure Hedge (UK) Limited makes no claim or warranty regarding either the appropriateness or suitability of these instruments for your purposes whether commercial or otherwise. Assure Hedge (UK) Limited may provide general commentary or educational material available on its website or otherwise, which is not intended as investment advice. You should carefully consider your financial situation and needs and seek independent advice from a duly authorised financial adviser. Assure Hedge (UK) Limited assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. You should read and understand Assure Hedge (UK) Limited’s Terms and Conditions prior to taking any further action.

MORE ARTICLES FROM ASSURE HEDGE


Pritesh Ruparel