Hedge Funds (Well, Some) Are Thriving

Hedge funds are a secretive lot by nature, so the rest of us should be grateful for any peeks into their world. One such rare peek came this week, when Absolute Return magazine released its list of the biggest hedge funds at the end of 2007.

What do the numbers tell us? Overall, the 262 hedge funds surveyed made it through a tumultuous 2007 with $407 billion in total assets, up an aggregate 34 percent over the previous year. The magazine says that's the best annual return it's ever seen.

Topping the list is J.P. Morgan, with $44.7 billion in assets under management. Behind J.P. Morgan were Bridgewater Associates and Farallon Capital Management, both managing $36 billion in assets. Renaissance Technologies was close behind with $34 billion, followed by Och-Ziff Capital Management at $33.2 billion. D.E. Shaw, Goldman Sachs Asset Management, Paulson & Co., Barclays Global Investors and Avenue Capital Group rounded out the top ten.

But unlike a lot of mutual funds, hedge funds don't move in a pack, they thrive by betting against each other and taking a lot of often contrarian risks. So three of the top ten funds lost $24 billion in the volatile second half of the year. Goldman Sachs, whose other trading divisions escaped much of the pain of the mortgage crisis, toppled from second place to seventh. D.E. Shaw fell to sixth from third.

Funds like Paulson & Co. made out much better. So the bottom line seems to be a bright silver lining for these funds that have ridden the market churn with skill, and maybe some luck. Of course, what funds tell the survey is non-binding. There could be losses still to be realized, but it seems to offer a bright spot in a dismal financial industry.