In fact, only one fund had a performance ranking that almost matched its profitablity ranking: Ray Dalio's Pure Alpha II for Bridgewater Associates, which was first in profitability and third in performance. The next best performance for a top 10 profitable fund was also by Dalio, this time working with Robert Prince: Pure Alpha 12% was third in profits and 13th in performance.
Three funds showed particularly poor correlation between fees and performance.
OZ Master, by Daniel Och for Och-Ziff Management, ranked sixth in profits, and Elliott International, by Paul Singer for Elliott Management, ranked seventh, but they tied for 99th in performance: a 6.7% return. According to Bloomberg Markets, the S&P 500 index gained 6% over the same span. Not much value added there for those fees.
Salesmanship Beats Trading Prowess
Indeed, these two hedge funds' profitability seems wholly due to their size: With approximately $17 billion and $19 billion under management respectively, both were larger than all the other 100-biggest funds except the much better performing Pure Alpha II, which has $34 billion in assets. (As Bloomberg Markets explains, a 5% return on $10 billion generates more fees than a 50% return on $100 million.) As a result, salesmanship in drawing money in seems to be more important than trading prowess in making the money grow.
Only four of the 10 most profitable funds had above-average returns: The two Bridgewater Associates Pure Alpha funds, and Cerberus Institutional Partners Series IV by Stephen Feinberg for Cerberus Capital Management (20% return, fifth in profits) and Thoroughbred by David Tepper for Appaloosa Management (19.6% return, 19th in profits.)
Since the fees of the profitable hedge funds seem generally so out of whack with their performance, and the performance of the funds overall wasn't stellar, the half of households with a net worth of $25 million or more that have invested in hedge funds should reconsider their choice.