Last Updated May 4, 2010 11:16 AM EDT
The Top Ten on Parade
Listed below are the world's largest hedge funds, followed by some key wisdom for investors.
The most important lesson that can be garnered from this list comes from the firms that don't appear. In only one year, three firms fell out of the top ten list - Goldman Sachs Asset Management, Renaissance Technologies Corp., and Citadel Investment Group, LLC.
To be sure, some hedge funds gained in assets, including the top three on the list. Others, however, had disastrous years. Declines included Goldman Sachs, loosing 45.2 percent and Farallon down 42.5 percent.
Collectively, the largest eleven hedge fund managers lost 22 percent of their assets during the year. That's right, during a raging bull market, the most successful hedge funds saw their assets shrink. I'm going to go out on a limb here, and point out that the mainly institutional investors in these hedge funds aren't pulling money out because they are thrilled with their performance.
Hedge funds: A way for fund managers to make unbelievable profits by convincing wealthy investors, pensions, and trusts, they have discovered a way to achieve high returns without commensurate risk. Qualifies as one of the greatest wealth transfer vehicles in modern times.The case for hedge funds is sexy and emotionally persuasive. But if you apply some simple common sense, you'll see the case against hedge funds stands solely on logic and economics. Unfortunately, investors tend to rely more on emotions than logic.
When someone invites you into the exclusive club of hedge fund investors, my advice is to say this is one exclusive club you can live without.