JPM, AQR win as hedge funds suck in assets

Mary Callahan Erdoes
David Grogan | CNBC
Mary Callahan Erdoes

The fat funds are getting fatter—the largest hedge funds now control more cash than ever before.

Americas-based firms that each invest at least $1 billion managed a record high of $1.71 trillion as of Jan. 1, according to a report by hedge fund data and news service Absolute Return.

Assets of the 293 firms on the "Billion Dollar Club" list increased $250 billion over last year, up from $1.46 trillion at the start of 2013. The addition represents a 17.16 percent increase, the fastest growth since before the financial crisis in 2007. The previous record high was $1.68 billion on July 1, 2008.

The Absolute Return Composite Index, which tracks American hedge funds across strategies, gained 8.5 percent in 2013. While that was far below stock market returns, hedge fund proponents look to funds as much for diversification and risk protection as for just producing out-sized gains.

Firms that investors believe fill that role continue to consolidate their power.

The largest firm with assets under management remains Ray Dalio's Bridgewater Associates, which controls $87.1 billion in hedge fund assets. The 1,400 person firm manages $150 billion overall. Bridgewater, which bets on macroeconomic trends and is a favorite of large institutions like pensions and endowments, had its assets rise 4.56 percent over the year. Its Pure Alpha II hedge fund gained 5.2 percent in 2013.

''The Fed may be tapering but investors aren't. It's clear the industry knows what it's doing," said Amal Robleh, research editor of Absolute Return. "Many hedge funds continue to provide performance that's attractive to institutional investors which has resulted in an increase in capital allocations. The big continue to get bigger, but also more sophisticated, more institutional and more focused on stable growth rather than short-term gains.''

Top ten Americas hedge funds by assets

AUM ($B) 1/1/14
Bridgewater Associates 87.1
J.P. Morgan Asset Management 59
Och-Ziff Capital Management Group 36.9
AQR Capital Management 29.9
BlackRock 27.2
Baupost Group 26.8
Adage Capital Management 25
Renaissance Technologies 24
Elliott Management Corporation 23.3
D.E. Shaw Group 22.38
Source: Absolute Return Billion Dollar Club

J.P.Morgan was the biggest gainer for 2013, increasing its hedge fund assets by $15 billion over the year. The bank's total includes funds spread out between J.P. Morgan Asset Management, led by Mary Callahan Erdoes, and subunits Highbridge Capital Management and Gávea Investimentos in Brazil.

The second largest asset gain came at Cliff Asness' AQR Capital Management. The Greenwich, Conn., based money manager reached the top 10 of hedge funds by size for the first time in 2013 as assets increased by $9.6 billion over the year to $29.9 billion as of Jan. 1. AQR managed more than $98.8 billion as of Dec. 31 including mutual funds, which are excluded from the Absolute Return ranking.

Rounding out the top five winners were Adage Capital Management, Discovery Capital Management and Och-Ziff Capital Management Group, a rare publicly traded company.

Top Hedge Fund Asset Winners

1/1/13 AUM ($B)
1/1/14 AUM ($B)
12 month
change ($B)
J.P. Morgan Asset Management 44.00 59.00 15.00
AQR Capital Management 20.30 29.90 9.60
Adage Capital Management 18.00 25.00 7.00
Discovery Capital Management 8.98 15.18 6.20
Och-Ziff Capital Management Group 31.2 37 5.7
Source: Absolute Return

The largest asset loss came at Boaz Weinstein's Saba Capital Management. The credit-focused firm shrunk by $1.6 billion to $3.5 billion as of Jan. 1. The flagship Saba Capital Offshore Fund fell 6.76 percent net of fees in 2013, according to a report by HSBC's Alternative Investment Group.

Another large decline came at Standard Pacific Capital, led by Douglas Dillard and Raj Venkatesan. The firm's assets fell $1.27 billion over 2013 to $1.3 billion as of Jan. 1 despite the stock-focused "B" hedge fund gaining about 20.2 percent net of fees in 2013, according to the HSBC report.

Top Hedge Fund Asset Losers

1/1/13 AUM ($B)
1/1/14 AUM ($B)
12 month
change ($B)
Saba Capital Management 5.10 3.50 -1.60
Regiment Capital Management 3.93 2.40 -1.53
ESL Investments 5.10 3.77 -1.33
Standard Pacific 2.57 1.30 -1.27
Quantitative Investment Management 4.53 3 -1.27
Source: Absolute Return

All 10 top winning and losing firms either declined to comment or did not respond to requests.

While the largest firms consolidated their power, the pace of new funds slowed and the number of shutdowns increased.

New hedge fund launches totaled an estimated 1,060 for 2013, the lowest level since 935 funds launched in 2009, according to data released in March by Hedge Fund Research. Hedge fund liquidations hit their highest level since 2009, with 904 funds closing over 2013, exceeding the 873 that liquidated in 2012 but trailing the 1,023 from 2009, according to HFR. A record 1,471 funds closed in 2008.

UPDATED: This story was updated to add comment from Absolute Return.