In many ways, a hedge fund is an ultra-sophisticated mutual fund. Like mutual funds, hedge funds take a pool of investor money and invest it in a variety of investments. However, hedge fund managers benefit from the fact that hedge funds are not regulated in the same way as mutual funds. Thus, hedge funds might allow you to buy or sell an asset not available to a traditional mutual fund.
Hedge fund research is essential before you choose to invest. The top hedge funds employ complex strategies to minimize risk and maximize return.
Top 10 Hedge Funds
Here are the top 10 hedge funds in the U.S., according to asset size, as ranked by Barron's, a financial investment news provider.
Name
Assets (mil)
Features
Parametrica Global Master Ltd.
$476
Highest-returning over one- and three-year periods
Camox Ltd.
$455
Long-bias hedge fund managed by Cologny Advisors
Voloridge Trading
$390
Market-neutral fund with low beta
Dunn-WMA LP
$542
Managed futures fund
Okumus Opportunistic Value Ltd.
$524
Run by famed manager Ahmet Okumus
Marlin LP
$797
Concentrated fund managed by star manager Michael Masters
BlackRock European Hedge
$1,710
Largest in top 10, only European-focused fund
Chenavari Toro Ltd.
$394
Asset-backed securities fund based out of London
City Financial Absolute Equity
$347
Designed to achieve positive returns in any market condition
Passport Special Opportunities Strategy
$460
Global macro fund employing long-term, concentrated focus
Parametrica Global Master Ltd.
Parametrica Global Master Ltd. is a hedge fund based in Hong Kong. With $476 million under management, the fund boasted industry-best single-year and three-year average returns in 2015 of 44.84 percent and 29.94 percent, respectively. The fund's main strategy focuses on statistical arbitrage, a complicated investment method that involves the simultaneous buying and selling of securities based on short-term mean reversion, or the belief that securities will return to a trendline. Parametrica also utilizes hedging strategies to minimize overall market risk through being market-neutral -- that is, having as little net exposure to the overall market as possible.
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Camox Ltd.
Camox Ltd. is an equity long-bias hedge fund operating out of London. Managed by Cologny Advisors, the fund's strategy is less esoteric and essentially focuses on picking winning stocks. However, "long-bias" doesn't mean that the fund is always fully invested. Rather, it means the fund doesn't go "market-neutral" or short stocks as much as the average fund, but it still hedges its positions. A typical long-bias fund usually has between 40- and 80-percent exposure to equities. The $455 million fund has proven this can be a winning strategy, with a 29.3-percent three-year average return after a 12.89-percent showing in 2015.
Voloridge Trading
Voloridge Trading is a hedge fund with $390 million in assets that, as a market-neutral fund, attempts to have a beta as close to zero as possible. In layman's terms, this means the fund attempts to minimize the effect of the overall market on its returns, instead focusing on placing concentrated bets on securities it anticipates will outperform the market as a whole. The fund achieved a return of 16.15 percent in 2015, part of its three-year total return of 28.77 percent. Based in Jupiter, Fla., the fund is part of the larger Voloridge Investment Management group, which manages total net client assets of $1.327 billion.
Dunn-WMA LP
Dunn-WMA LP is a newcomer to the top 10 list this year, and the only fund employing a managed futures strategy. A managed futures fund relies on commodities trading advisors to take long and short positions in a number of different types of futures contracts, including but not limited to equity indexes like Standard & Poor's 500 index; commodities such as cotton, sugar or coffee; metals, including gold or silver; grains like wheat, corn or soybeans; foreign currency or government bond futures. Managing $542 million, the fund, based in Stuart, Fla., returned 10.04 percent in 2015. Three-year returns were better, reaching 26.14 percent.
Okumus Opportunistic Value Ltd.
Another newcomer to this year's top 10 list is the Okumus Opportunistic Value Ltd. fund. Headquartered in New York, the Okumus Fund Management vehicle oversees $524 million in investor assets using an equity long/short strategy. A long/short strategy allows a fund to own stocks it believes will rise in value while shorting stocks it anticipates will fall. With a three-year compound rate of return of 25.86 percent, the fund returned 14.26 percent in 2015. Managed by legendary value investor Ahmet Okumus, the fund typically runs a concentrated portfolio that is primarily long, although its long/short strategy allows it to hedge as it deems prudent.
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Marlin LP
Marlin LP returned a negative 8.41 percent to investors, but still managed an impressive 25.54 percent for its three-year compound annual return. The equity long-bias fund with $797 million in assets is run by Masters Capital Management out of Atlanta, GA, but its star manager is Michael Masters, one of the top hedge fund managers featured in the book "Stock Market Wizards." Masters uses options and makes wagers on companies he anticipates have a catalyst to move the stock higher. Masters also focuses on money flow, or sectors/investments that "big money" investors are buying, in anticipation that those hot areas will continue to attract more investor money.
BlackRock European Hedge
One of the largest hedge funds, the BlackRock European Hedge fund is by far the largest on the top 10 list with $1.71 billion in client funds under management. The fund is managed by BlackRock Investment Management (UK) Limited but is part of the much larger BlackRock Inc. out of New York. The fund returned a three-year average of 25.02 percent, punctuated by a stellar 36.27 percent in 2015. Focusing solely on European investments, the fund utilizes an equity long/short strategy, both buying and shorting equities. The fund invests across diversified industries and all market capitalizations.
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Chenavari Toro Ltd.
A small division of the $5.4 billion under management by Chenavari Investment Managers of London, the Chenavari Toro Ltd. hedge fund oversees $394 million in investor funds using an asset-backed securities strategy. Returning 15.21 percent in 2015, the fund posted a three-year compound annual return of 24.11 percent. Chenavari's strategy focuses on bonds that are backed by various assets, including auto loans or credit card receivables. Chenavari Toro Ltd. also invests opportunistically in other structured credit investments, primarily European-based, that trade in the primary and secondary markets.
City Financial Absolute Equity
Although it's the smallest hedge fund in the top 10 at just $347 million in assets under management, the City Financial Absolute Equity fund nonetheless posted impressive 2015 and three-year average compounded returns of 22.66 and 23.54 percent, respectively. The fund is run by City Financial Investment of London, a multi-national investment firm with $3.7 billion in client assets. The fund's long/short strategy is designed to achieve a positive return in any type of market condition, measured over rolling three-year periods, by investing mainly in UK and global equities.
Passport Special Opportunities Strategy
Rounding out the top 10 hedge fund list is the Passport Special Opportunities Strategy fund, with $460 million in assets run under a global macro strategy. The fund, out of Passport Capital in San Francisco, posted a 17.71-percent return in 2015, along with a three-year compound average of 23.50 percent. The fund's special opportunity strategy focuses on longer-term investments with less liquidity, coupled with a concentrated portfolio of typically just 15 to 25 positions. Less liquid or private equities are also part of the overall investment strategy.
This article originally appeared on GOBankingRates.com: Top 10 Hedge Funds in the U.S.