Washington, D.C. — Our rankings of hedge-fund managers are based on data compiled by Bloomberg specialist Anibal Arrascue and information supplied by hedge-fund research firms, hedge funds and investors. This year, we have two lists of top performers: 100 funds with assets greater than $1 billion and 50 funds with assets of $250 million to $1 billion. Assets and returns were for the 10 months ended on Oct. 31, 2012.
The returns we obtained were net of fees. We calculated profits for each fund by dividing the net figure by 100 percent minus the sum of the management and incentive fees. If a fund didn't report its fees, we used the average of funds in our universe: a 2 percent management fee and a 20 percent incentive fee.
Using gross returns, we were able to reconstruct approximately what the assets were at the start of the year. (Because we didn't have inflows or outflows, the asset numbers didn't take asset flows into account.) We subtracted original assets from current assets and multiplied the result by each fund's performance fee to derive the profits. Management fees aren't included; we assumed they were used for the day-to-day operations.
Our ranking of the most-profitable funds took 2011 performance numbers into account because most managers get paid only when the value of their funds is greater than its previous highest value. About half of the top-performing large hedge funds had negative returns in 2011. The profits for these funds were calculated by using the percentage by which their return this year exceeded their "high-water mark."
Several funds appearing on the most-profitable ranking do not show up on our lists of top performers. That is because the size of a fund can trump returns in calculating profits.
We couldn't obtain returns from several of the biggest hedge-fund firms by assets. For a handful of other firms, we had returns on only one or two funds. Onshore and offshore assets and returns were combined for a number of funds, while figures for other funds on our lists were for only the larger class of the fund.
The numbers were difficult to verify. Unless the information came from Bloomberg or the hedge-fund firm itself, we tried to verify it with other sources.