The Fund of Funds 50

The Hedge Fund 100 ranking methodology In this inaugural ranking of the world¨s hedge funds, II reveals which of these secretive investment vehicles are the biggest.

Hedge funds sure have a knack for making headlines, whether it¨s George Soros¨ celebrated run on the Bank of England in 1992 or Long-Term Capital Management¨s infamous meltdown in 1998, which very nearly took the world¨s financial system down with it.

Yet for all the drama and buzz ¨ and wealth ¨ they have created, hedge funds remain exceedingly secretive. For the most part, their managers like it like that. But in a world that demands transparency, that secrecy is increasingly anomalous and difficult to maintain given the growing number and size of the funds and their disproportionate influence in the markets. In the past decade the number of hedge funds has exploded from 2,000 to 6,000, according to Van Hedge Fund Advisors International, which calculates that the funds¨ assets have soared from $67 billion to some $600 billion. In addition, their investors, once primarily wealthy individuals, now include pension funds, endowments and foundations, which are more demanding about disclosure.

In this month¨s issue we¨ve set out to shine a light on this dynamic and fascinating sector of the investing world. In the tables that follow, we aim to identify the biggest hedge fund managers in the world. Ranked by assets, II¨s inaugural Hedge Fund 100 will take its place, we hope, beside our other definitive money management rankings, the II 300, for U.S. money managers, the Euro 100 and the Asia 100.

The need for a separate ranking for hedge fund managers is clear. Hedge fund databases abound, but none covers the entire universe of big managers. Moreover, most hedge fund managers do not qualify for our existing rankings of traditional asset managers because of the difference in scale between the ¨long-only¨ world of traditional managers and the alternative-investment world. A hedge fund manager with $2.8 billion in assets ¨ good enough to rank 38th on our new list ¨ would not have made last year¨s II 300.

To be sure, ranking hedge fund managers presents unique difficulties. Start with their penchant for obscurity: To steer clear of mutual fund regulations, hedge funds cater only to sophisticated investors and cannot be seen to advertise themselves to the general public. Hence many are unwilling to disclose even the most basic information. Indeed, simply locating some of the funds was a challenge. A team of editorial researchers and staff reporters worked for months to gather the data and, in many cases, to estimate assets for hedge fund firms. Our listings provide each manager¨s total hedge fund assets (before leverage) and, where possible, breakdowns at the individual fund level with one-year returns (net of fees) and investment style. All data are as of December 31, 2001, unless otherwise noted. All told, the list of firms captures more than $260 billion in hedge fund assets. That¨s more than 40 percent of the $600 billion that Van Hedge estimates is managed by existing funds.

The data that appear in the table were gathered from questionnaires filled out by the hedge funds themselves, supplemented by research in the public record and extensive staff reporting. In some cases, we estimated assets and returns based on information gathered by our reporters. Estimates are footnoted.

We have excluded separate accounts, funds-of-funds, funds that are marketed by a firm but subadvised by a third party (subadvised funds are credited to the actual manager) and assets managed in collateralized bond obligations and collateralized debt obligations. In addition, we excluded private equity funds run by hedge fund managers and assets in vehicles that resemble private equity funds: long-lockup, illiquid funds that ask investors to commit capital but then draw it down over time with capital calls.

Where we were unable to properly identify the investing style, returns or assets for a fund or firm, we left those fields blank. In some cases, for the sake of convenience, managers have rolled up multiple funds run in a single style (onshore and offshore versions of the same fund, for example) into one entity and reported composite figures for assets and returns.

Despite our best efforts, some firms that belong on the list managed to evade our scrutiny. If we missed you this year, we hope to find you in 2003. We encourage you to contact us so we can include your firm in next year¨s list. Some firms that completed our questionnaire were too small to make the list. We thank them for their cooperation.

This ranking was compiled under the direction of Senior Editor Jane B. Kenney and Contributing Editor Lewis Knox, with assistance from Senior Editor Hal Lux, Staff Writers Rich Blake and Justin Dini, Contributing Editor Stephen Taub and researchers Michele Bickford and Polly Watson.