Each year, Forbes magazine releases its list of the 400 richest Americans. This year, for the 20th consecutive year, Bill Gates once again headed the list, whose cost of admission is a net worth of $1.3 billion up from $1.1 billion in 2012. Of this group of 4o0, 28 of these places (7 percent) were filled by those who manage hedge funds. This number is down from last year when 31 hedge fund managers graced Forbes’ annual list.
Hedge fund managers: richest Americans
Twenty-four of the managers on the list showed an increase in wealth over last year’s numbers. John Arnold, who closed his wildly successful Centaurus Advisors in May of 2012, showed a slimmer balance sheet this year. It’s not that Mr. Arnold lost his Midas touch, but rather a pickup in his charitable donations caused the deflation of his personal balance sheet. It’s believed that Mr. Arnold and his wife have given away over $1.2 billion and have reduced their net worth to $2.8 billion.
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For the first half of 2013, the average hedge reported a 3.4 percent gain in their portfolios while being eclipsed by the 12 percent growth of the S&P 500 (INDEXSP:.INX). The big difference there is that an investment in the latter can be made by anyone without the steep fees that hedge funds charge for their portfolio management. Of the 50-60 funds managed by some of these billionaires, Forbes notes that while performing better than the hedge fund average, they still lag behind low-fee S&P 500 index funds by over 50 percent.
Performance based on hedging
Certainly this performance is based on the hedging that hedge funds do by definition, rather than straight bull investing in long positions. It’s easy to criticize hedge funds in a soaring long-only bull market, and the media has done just that in maligning a number of funds managed by those making the list.
On the flip side, there were a few funds that outperformed the S&P 500 (INDEXSP:.INX) by a great measure. John Paulson is now worth an estimated $11.4 billion, making him the fourth richest hedge fund manager in the United States largely based on the performance of his Recovery Fund, which was up more than 25 percent net of fees through the end of June.
Following Paulson, Steve Cohen is America’s fifth wealthiest hedge fund manager, with a net worth of $9.4 billion. To call his year tumultuous might be the acme of understatement. Though his SAC Capital returned a respectable 8 percent net of fees through the first half of the year, Cohen’s problems are regulatory, not performance related. In March, SAC agreed to pay a record $616 million fine when the embattled hedge fund outfit settled two civil insider trading cases brought against it by the SEC. The firm neither admitted nor denied wrongdoing in the settlement, but Cohen personally still remains a target of the SEC for his failure to prevent insider trading at the firm. These legal issues have resulted in an exodus of investors, amounting to over $5 billion in redemption requests.
Billionaires Henry Swieca, formerly of Highbridge Capital Management, Paul Singer of Elliott Management, Richard Chilton of Chilton Investment Company, William Ackman of Pershing Square Capital Management and Seth Klarman of the Baupost Group all increased their wealth but failed to make the cut.