P24 BARRON’S May 19, 2014 SPECIAL REPORT | HEDGE FUNDS Our Top 100 Hedge Funds Equity came roaring back into style in 2013. Now what? By Eric Uhlfelder funds must have at least $300 million and three years of re- Photograph by Roger Hagadone for Barron’s ported returns. The data-crunching begins BARRY ROSENSTEIN’S JANA PARTNERS SHARES A COUPLE OF with screens prepared by traits with other leading performers in Barron’s Top 100 three leading hedge-fund Hedge Funds. This year, many of them are equity special- databases: BarclayHedge (bar- ists that focus on a short list of companies they get to clayhedge.com), Morningstar know extremely well. (morningstar.com), and eVest- The prime example would be this year’s No. 1: Larry ment (evestment.com). They Robbins’ Glenview Offshore Opportunity fund, which av- sort through thousands of eraged a 32.61% annualized return over three years and funds to meet our basic crite- even managed to leave 2013’s huge stock market rally in the ria. With the help of Barron’s dust with a 101.74% gain. Robbins, whose 20 biggest long Contributing Editor Erin E. positions make up two-thirds of his portfolio, calls his form Arvedlund, we draw from of activism “suggestivism.” He encourages executives to re- other trustworthy sources. We alize the growth potential in their businesses. Even in well- then contact the managers to He’s No. 1. Larry Robbins’ run outfits, notes Robbins, managements remain reluctant verify results, affirming all Glenview Offshore Oppor- five years after the financial crisis to unleash their cash or tunity fund parlayed data and that performance is to exploit their debt capacity. Obamacare beneficiaries net of expenses. Robbins has played a controversial U.S. policy to great into Barron’s top position. Based on a sampling of opin- effect. Glenview targeted a third of its portfolio toward hospi- ion from 40 leading wealth advi- tal, managed-care, life-science, and pharmaceutical shares. sors, Penta recently suggested “While many investors have been wary of Obamacare,” he which together are spurring multiple expansion.” that hedge funds could be a good bet over the next few years says, “it has been a boon for much of the health-care sector.” As we predicted a year ago, funds focused on some of because they can go short various markets and offer returns (Barron’s profiled Robbins in “Bullish on Obamacare,” July the previously leading areas, such as structured credit, uncorrelated to major indexes. With the outlook for bonds 29, 2013. For the first time, that and other profiles plus simply couldn’t keep up their sprint. For instance, Zais and stocks so uncertain, investing in a diverse array of funds, related articles are available at Barrons.com for selected Group, which was No. 1 in both 2011 and 2012, was driven including those on the next couple of pages, makes sense. funds appearing on our Top 100 list on pages 25 and 26.) by the strong recovery in mortgage- and asset-backed se- Besides equity and structured credit funds, other strate- Other equity investors found their own profitable themes. curities after the credit crisis. Zais fell to No. 15 this year gies well-represented on our list this year include commod- Chris Hohn’s Children’s Investment fund, No. 4 on our list, because its 2013 returns dropped to 9.75%. ity-trading/macro, fixed-income arbitrage, and distressed- posted annualized gains of 27% over the Overall, as the world has regained its footing after the credit. Through April, 2014’s top-performing strategies have The complete past three years by concentrating on a Great Recession, returns have begun to revert to more normal been distressed (4.7%), event-driven (3.3%), and fixed-in- Hedge Fund 100 dozen investments. One of them, air- levels, below the dramatic, postcrisis figures. Zais had three- come arbitrage (3.1%). Long/short managers have struggled listing begins plane-manufacturing giant European year returns of more than 78% and 50%, respectively, in win- a bit so far, up just a half-percentage point. on page 25 Aeronautic, Defense & Space, since re- ning the last two contests. In comparison, this time around, Eric Siegel, global head of hedge-fund investments at named Airbus (AIR.France), soared Glenview’s three-year return was a much more modest 32.61%. Citi Private Bank, believes event-driven funds should be 90% last year. And the value of his in- To qualify for our eighth edition of Barron’s top-ranked able to continue to exploit the rise in corporate deal-making, vestment in Aurizon Holdings (AZJ.Australia), the priva- funds, a fund needed at least a 12.25% three-year annualized particularly by investing in specific parts of a company’s tized Australian railroad, jumped 30%. return, net of fees. The average return of this year’s leaders capital structure. He’s also keen on European distressed Nearly as focused was Richard Mashaal and his Senvest was 17.01%, nearly four times that of the typical hedge fund, funds, as that region’s banks sell assets at attractive prices. Partners fund, No. 37. Mashaal’s 20 biggest stakes make up as measured by the BarclayHedge Fund Index Average’s And with corporate fundamentals starting to drive share- 80% of his portfolio, and they pushed his returns 80% higher 4.37% rise. The Top 100’s gains also beat the Standard & price performance, displacing the common lift that most in 2013 alone. His selection of out-of-favor financial and real- Poor’s 500’s three-year average of 16.15%. However, even the shares had been receiving from the rising macro tide, Siegel estate stocks helped boost his fund’s three-year annualized Barron’s 100’s average of 22.97% for 2013 couldn’t keep pace sees opportunities for sharp long/short equity managers. returns to 16.82%. The fund had seven names, including with the S&P’s 32.38% return. Just remember that all hedge funds aren’t created equal. mortgage insurer Radian (RDN) and REIT Northstar Re- The Top 100 excludes funds that happen to be in a hot in- Scores closed their doors last year. And the average hedge alty Finance (NRF), that more than doubled last year. “Our dustry, region, or specialized asset class. We screen out those fund returned a paltry 11.12%—roughly a third of the stock fund also benefited from the reduced fears surrounding both that invest in a single foreign country or sector, or specific market’s gain. Barron’s Top 100 Hedge Funds is our way of the U.S. and European debt crises,” explains Mashaal, “and commodities or currencies. To help ensure inclusion of profes- helping you get to know managers and strategies that have the return of economic growth on both sides of the Atlantic, sionally run shops that may offer more stability and liquidity, succeeded over time. May 19, 2014 BARRON’S P25 SPECIAL REPORT | HEDGE FUNDS BARRON’S TOP HEDGE FUNDS reflected a number of marketplace shifts last year. As we predicted in early 2013, investors in asset-backeds and mortgage-backeds have seen a slowing of returns over the past year, ending a remarkable run. Our 100 best funds, many of them equity-related, returned an annualized 17.01%, net of fees, over three years, beating the BarclayHedge Index Average by a comfortable 13 percentage points and the Standard & Poor’s 500 by a point. Leading the way was Glenview Offshore Opportunity, up 32.61% per year over three years, and distressed investor Hildene Opportunities, up 30.64%. Rank Fund Assets 3-Yr Compound 2013 Firm 2013 2012 Fund Name (mil) Fund Strategy Annualized Return Return Firm Name / Location Assets (mil) 1. 75. Glenview Offshore Opportunity $2,026 Opportunistic, Concentrated Equity L/S 32.61% 101.74% Glenview Capital Management / New York $7,706 2. 6. Hildene Opportunities LP 1,004 Distressed Securities 30.64 35.33 Hildene Capital Management / Stamford, Conn. 1,809 3. 3. Chenavari - Toro Capital IA Class A (Euro) 383 Asset-Backed Securities 29.96 32.93 Chenavari Investment Managers / London 4,429 4. 54. Children’s Investment Ltd 7,830 Equity Activist 27.00 47.22 TCIF Management / London 12,100 5. N.R. Tiger Global 6,000 Equity Long / Short 26.68 14.00 Tiger Global Management / New York 14,500 6. 2. Quantedge Global 710 Global Macro 26.47 9.16 Quantedge Capital / Singapore 710 7. 47. Napier Park European Credit Opportunities Ltd 331 Credit Long / Short 25.90 30.73 Napier Park Global Capital / New York 5,500 8. 7. STS Partners Ltd 962 Mortgage-Backed Securities 25.66 25.63 Deer Park Road Corp / Steamboat Springs, Colo. 1,100 9. N.R. Tiger Ratan 503 Equity Long / Short 25.41 46.80 Ratan Capital Management / New York 503 10. 8. Asgard Fixed Income I Ltd (Euro) 400 Fixed-Income Arbitrage 24.93 16.00 Moma Advisors / Copenhagen 400 11. N.R. Matrix Capital Management 1 1,346 Equity Long / Short 24.46 56.00 Matrix Capital Management / Waltham, Mass. 1,600 12. N.R. Marlin Fund LP 433 Equity Long-Bias 24.37 77.47 Masters Capital Management / Atlanta 474 13. 16. Danske Invest Hedge Fixed- Income Strategies 1,373 Fixed-Income Arbitrage 23.56 18.83 Danske Capital / Copenhagen 132,626 14. N.R. Tilden Park Investment Master 1,639 Multi-Strategy / Fixed Income 23.31 20.53 Tilden Park / New York 1,935 15. 1. ZAIS Opportunity Ltd Series B 419 Credit Long / Short 22.13 9.75 ZAIS Group / Red Bank, N.J.