An Industry in Flux

Big changes are coming to the U.S. hedge fund industry in 2012. Thanks to Dodd-Frank, funds will have to meet expensive and unprecedented disclosure and reporting standards. And there's new competition: The Volcker Rule is spurring bank proprietary traders to hang out their own hedge fund shingles. But there's also new opportunity. A recently enacted clause of the JOBS Act allows hedge funds to advertise their wares. Here are 10 hedge funds whose management and track records suggest that they're equipped to navigate 2013's uncertain terrain.

With a short bet on Green Mountain Coffee, whose stock fell by about 75 percent in value in the year to October 2012, Greenlight founder David Einhorn was one of the few winners in the dismal hedge fund landscape of 2011. Einhorn’s deep dives into company financials— which unearthed big problems at Lehman Brothers, among others— should continue to pay off in 2013. The latest short of his $7.7 billion fund, which reportedly returned 10.9 percent in the year to September: Chipotle. Einhorn says Chipotle customers are ripe for the picking—by Taco Bell.


greenlightcapital.com
212.973.1900

• UP 10.9 PERCENT
• $7.7 BILLION FUND

Lee Ainslie’s $9 billion long/short equity fund was up 21 percent in the year through mid- October, a period when most of his competitors had trouble reaching mid single digits. Ainslie’s focus on fundamental research should keep him in good stead in 2013.


maverickcap.com
212.418.6900

• UP 21 PERCENT
• $9 BILLION FUND

In the thick of the financial crisis, as market meltdowns overshadowed CEO shenanigans, Dan Loeb’s public screeds against limousine riding, corporate-box warming executives looked increasingly irrelevant. But with companies sitting on piles of cash and corporate governance once again attracting attention, Loeb’s fund—up 11 percent through September— looks ready for the limelight again.


thirdpoint.com
212.224.7400

• UP 11 PERCENT
• $8.8 BILLION FUND

It’s hard to argue with a 22 percent return, especially when most hedge fund managers failed to beat the S&P 500’s 16.4 percent. But that’s what Leon Cooperman’s fund managed to pull off in the year to September. Cooperman, who has compared President Obama’s election to the rise of the Third Reich, doesn’t seem to have suffered during Obama’s first term.


omega-advisors.com
212.495.5200

• UP 22 PERCENT
• $7 BILLION FUND

Through canny management of his $14 billion distressed debt fund, David Tepper posted a 22 percent gain for the year to October. Tepper is taking a wait-and see approach to the markets right now, keeping a close eye on developments in Spain and elsewhere in the European periphery, but could reapply his expertise if the European debt crisis flares up again.


amlp.com
973.701.7000

• UP 22 PERCENT
• $14 BILLION FUND

Boaz Weinstein is widely credited for harpooning JPMorgan Chase’s “London Whale” on trades that cost that bank billions. His fund has grown to $5.8 billion in three years on the back of his expertise in credit markets. With European sovereign and bank credits still in flux, Saba is well positioned to benefit from any dislocations in 2013.


212.542.3610

• UP 9 PERCENT
• $5.8 BILLION FUND

Deepak Narula’s expertise in trading mortgage securities has lifted his fund to a three-year compound return of 62 percent; through September, it was up 34 percent for 2012. (The industry average was around 3.5 percent.) The housing market’s slow recovery should make enough waves in the mortgage world to keep Narula’s traders profitably busy in 2013.


212.300.0500

• UP 34 PERCENT
• $1.4 BILLION FUND

It is occasionally joked that, given the fierce loyalty his 1,200 employees show to the $130 billion hedge fund behemoth, Ray Dalio runs a cult up in Westport, Ct. But Dalio’s nonhierarchical, transparent approach pays off. The firm’s method of separating alpha and beta and optimizing both exhibits positive returns in both calm and turbulent markets.


bwater.com
203.226.3030

• UP 23 PERCENT
• $130 BILLION FUND

David Harding’s quant fund must be doing something right: Its AUM has increased at almost the fastest pace in the industry—33.4 percent between 2011 and 2012. Harding is inspired by Renaissance Technology’s model driven approach, and has thrived in recent years. Market gyrations make for good times at funds such as his, and 2013 is expected to see its share of volatility.


wintoncapital.com
44.20.7610.5350

• UP 33.4 PERCENT
• $29 BILLION FUND

Barry Rosenstein’s activist investment hedge fund’s latest target is Agrium, a Canadian fertilizer company. The push against Agrium is typical Rosenstein, who is employing a shrewd mix of public chest-thumping and private negotiations. With corporate values enhanced by growing cash hoards, and corporate investment opportunities increasingly scarce, Rosenstein’s skill set should prove increasingly valuable in 2013.


janapartners.com
212.455.0900

• UP 11.2 PERCENT
• $2.5 BILLION FUND