Dalio Earned Clients $13.8 Billion to Lead Hedge Funds as Paulson Slumped

Ray Dalio’s Pure Alpha hedge fund made $13.8 billion for its investors last year, while John Paulson lost clients almost $10 billion after an unsuccessful wager that the U.S. economy would recover, according to a report by LCH Investments NV.

Pure Alpha, part of Dalio’s Bridgewater Associates LP, has earned $35.8 billion for investors since its inception in 1975, said LCH, a firm overseen by the Edmond de Rothschild Group. Losses for New York-based Paulson & Co. last year cut gains the firm has made for clients since its 1994 founding to $22.6 billion, LCH estimated.

Dalio’s Pure Alpha II ran up a 23.5 percent gain in the first 10 months of the year. The manager, 62, had three of the industry’s 12 best-performing funds, Bloomberg Markets reported in its February issue. The firm charges 2 percent of assets as a management fee and gets 20 percent of profits.

Bridgewater, based in Westport, Connecticut, has about $120 billion of assets and uses a macro strategy to try to profit from economic trends. It placed diversified bets in 2011 after predicting a flight by other investors to safer assets such as U.S. Treasuries and German bonds, standing out in a year when hedge funds lost 5.2 percent on average, according to data compiled by Bloomberg. Paulson posted a record loss of 51 percent in one of his biggest funds.

“Macro investing is notoriously difficult, but the best managers are able to find opportunities, especially in troubled markets,” London-based Rick Sopher, LCH’s chairman, said in the report. Funds lost a net $123 billion, LCH estimated.

Brevan Howard

Macro hedge funds lost 7 percent last year, according to Bloomberg data.

LCH’s research on the 10 most profitable hedge funds ever shows such firms earned clients a net $3.1 billion in 2011. Other money-making hedge funds on the list included Brevan Howard Asset Management LP’s Master Fund with $3.2 billion of gains and Baupost Group LLC with $400 million. Brevan Howard, based in London, was co-founded in 2003 by former Credit Suisse AG trader Alan Howard, 48, and Seth Klarman, 54, founded Boston- based Baupost in 1983.

LCH said its analysis of how much hedge funds made for investors after charging performance and management fees is based on discussions with the funds, audited reports issued by the firms and confidential sources. The total typically includes a manager’s investment in his own firm.

Funds that lost money last year include Paulson with $9.6 billion, George Soros’ Quantum Fund with $3.8 billion, David Tepper’s Appaloosa Management LP with $800 million and Louis Bacon’s Moore Capital Management LLC with $300 million, according to LCH’s estimates.

‘An Aberration’

Paulson, who made billions of dollars betting against the U.S. housing market in 2007, remains the third-most profitable hedge fund manager ever after rivals at Bridgewater and Quantum, according to LCH.

“Our performance in 2011 was clearly unacceptable,” Paulson, 56, wrote in a letter sent this month to clients. “We took too much equity exposure and lacked sufficient hedges to mitigate the market volatility. However, we believe 2011 will be an aberration in our long-term performance.”

Caxton Associates LP and Thomas Steyer and Andrew Spokes’ San Francisco-based Farallon Capital Management LLC didn’t make or lose any client money last year in their main funds, LCH’s data show. Soros, 81, decided last year to return all money to outside investors. Bruce Kovner, 67, Caxton’s CEO and founder, retired in 2011 from the New York-based firm, which is now managed by former Goldman Sachs Group Inc. trader Andrew Law.

SAC Capital

New to LCH’s list of the most profitable hedge funds through 2011 is Steve Cohen’s SAC Capital Advisors, which has made $12.2 billion for clients since inception in 1994, according to LCH. SAC, based in Stamford, Connecticut, replaced Edward Lampert’s ESL Investments Inc. of Greenwich, Connecticut.

Below is a list of how much money clients have made investing in top hedge funds since inception. The data are provided by LCH Investments NV.

Hedge Fund                 Net Gains              Year Founded

Bridgewater Pure Alpha     $35.8 Billion          1975
Quantum Endowment Fund     $31.2 Billion          1973
Paulson & Co.              $22.6 Billion          1994
Baupost                    $16   Billion          1983
Brevan Howard              $15.7 Billion          2003
Appaloosa                  $13.7 Billion          1993
Caxton Global              $13.1 Billion          1983
Moore Capital              $12.7 Billion          1990
Farallon                   $12.2 Billion          1987
SAC                        $12.2 Billion          1992

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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