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A group of prominent hedge funds have roared back with market-trouncing returns in 2017, helping the industry score its best performance in at least four years in a surprise rebound for an often maligned pocket of Wall Street.
An elite club of managers rode bull markets and increased dispersion between securities to score profits of at least 20 percent through the end of October, a dramatic improvement from last year for investors such as Larry Robbins, Philippe Laffont, and Chase Coleman, people familiar with individual funds' performance said.
One of the largest returns came from Charlottesville-based investor Jaffray Woodriff, who used short-term stock bets to score a 68.3 percent gain in a key fund of his $4 billion Quantitative Investment Management.
By comparison, the S&P 500 Index was up 15 percent, more than double the benchmark HFRI hedge fund index, which was up 7.23 percent through October, its best annual return since at least 2013.
"We've been seeing significantly improved performance," Darren Wolf, head of hedge fund solutions for the Americas at Aberdeen Asset Management, said.
The last few years have been littered with hedge fund managers who charged steep fees and often promised heady returns only to lose money for investors or close shop entirely. A roaring stock market and the rise of low-cost investment tools, such as index funds, have also hit the industry.
Still, the mega-winners this year offer some hope for investors and managers who believe the industry can produce "alpha," or returns above the market's "beta."
The main fund managed by Robbins' $11.7 billion Glenview Capital Management is up 21 percent so far this year, thanks to positions in health-care technology provider IQVIA Holdings, health insurer Anthem, and chemical manufacturer FMC Corp., according to a public disclosure of top stock holdings and a person familiar with the returns. Like others, the person requested anonymity to discuss private information about the fund.
Robbins, a New York-based billionaire, lost money for investors in both 2015 and 2016, according to a report by HSBC Alternative Investment Group.
Coleman and Laffont relied on technology companies to drive outsized gains.
The main fund managed by Coleman's $20 billion Tiger Global Management gained 34.5 percent through October, due partly to investments in Chinese internet companies Alibaba and JD.com, a second person familiar with his performance said.
Coleman's main hedge fund lost money in 2016, while Laffont's produced a small positive return, according to media reports.
Other funds benefited from investments in emerging markets, people familiar with them said.
An Argentina-focused fund managed by $1.5 billion Bienville Capital Management gained 40.6 percent through October, while the oldest fund within $3.4 billion Toscafund Asset Management gained 28.8 percent, helped by bets on financial companies in Portugal, Spain, and Russia.
The outperformers are still few though, and it is likely too early to tell if their successes signal a broad return to the bumper profits that made hedge funds famous, especially since the pressures facing the $3 trillion hedge fund industry remain.
A small but high-profile group of institutional investors have pulled out in recent years, and remaining clients continue to grouse about high fees and a lack of transparency into complicated bets.
Hedge funds usually charge 2 percent of assets under management and 20 percent of investment gains, though fees have fallen. Index funds cost just a fraction of a percent of assets.
Managers often justify tepid returns by saying they create a diversified portfolio that will hold up in a crash, making comparisons to generic stock and bond indices unfair.
If economic conditions sour and the bull market dissipates, as some are predicting, there could be a broader hedge fund comeback, said Arvin Soh, who helps pensions and other institutional clients invest in hedge funds for GAM Alternative Solutions.
"They are called hedge funds for a reason," Soh told Reuters. "Things can't go up forever, and that's when we'd really expect these strategies to shine."