Today’s Daily Angle comes from Wikinvest Wire members MarketFolly. You can read the full article on the Market Folly blog.

It’s time to check in on how prominent hedge funds performed in the year of 2009. Don’t forget that in the past we also presented a comprehensive post on 2008 hedge fund performance numbers if you wanted to cross-reference. A big hat tip goes out to the anonymous investors and readers who sent us hedge fund letters, Dealbreaker, & Marketwatchfor all providing data.

As a reference point:

• Hennessee Hedge Fund Index: +24.85%
• S&P 500: +26.5%

John Paulson’s firm Paulson & Co

• Advantage Fund: +13.75%
• Advantage Plus Fund: +21%
• Credit Opportunities Fund: +34%
• Recovery Fund: +24.2%

Mohnish Pabrai: Pabrai Investment Funds

• PIF2: +122.5%
• PIF3: +125%
• PIF4: +118.8%

Barton Biggs’ Traxis Partners

• Traxis Fund: +38%

Och Ziff Capital Management

• Master Fund: +23%
• Asia Master Fund: +33.6%
• Global Special Investments Master Fund: +8.3%
• European Fund: +16.3%

Dan Loeb’s Third Point LLC

• Offshore Fund: +38.6%
• Partners Fund: +38.2%
• Partners Qualified Fund: +33.3%
• Ultra Fund: +44.2%

Peter Thiel’s Clarium Capital

• Fund: -25%

Marc Lasry’s Avenue Capital Group

• International Fund: +66%

Steven Cohen’s SAC Capital

• International Fund: +28.39%

Ken Griffin’s Citadel Investment Group

• Kensington Fund: +61.84%

Philip Falcone’s Harbinger Capital Partners

• Partners Fund: +46.55%

David E. Shaw’s D.E. Shaw & Co

• Oculus Fund: +8.7%
• Composite Fund: +21.1%

Ray Dalio’s Bridgewater Associates

• Pure Alpha II Fund: +2.00%

George Soros’ hedge fund Soros Fund Management

• Quantum Endowment Fund: +28%

Paul Tudor Jones’ Tudor Investment Corp

• BVI Global Fund: +16.51%

Louis Bacon’s Moore Capital Management

• Global Fund: +20.6%

Bruce Kovner’s Caxton Associates

• Global Fund: +6.15%

Dmitry Balyasny’s Balyasny Asset Management

• Atlas Global Fund: +8.64%

So, 2009 performance results look to be the polar opposite of 2008 results for some firms. Many notable firms who performed poorly in 2008 did well this past year and have surpassed their high water mark including David Einhorn’s Greenlight Capital, Steven Cohen’s SAC Capital, and Philip Falcone’s Harbinger Capital Partners, among others.

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Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of HedgeFundBlogger.com. You can read the full article on Richard’s blog.

Fast growing hedge funds are unlike most large hedge funds and emerging hedge fund managers. They have figured something out and are positioned to grow unlike 90%+ of the industry. Here are some lessons which can be taken away from some of the fast growing hedge funds we have worked with:

1. They take transparency serious and work to be pro-actively very transparent - more so than their competition.
2. They approach multiple investment channels but mostly ignore those completely out of their reach (example, potential pension fund clients for a $75M fund).
3. They are always developing relationships and they have dedicated internal and some external professionals always selling on their behalf.
4. They not only pedigree on their team but they are always building that pedigree through additional research, hiring of expert staff, and through speaking & writing.
5. They document their operations and make decisions based on what is best long-term for the organization rather than what is cheaper to implement today.
6. They have risk management and trading plans which are closely followed, this helps them improve their actual trading results and provides confidence to investors since their historical trading actually matches up against the decision making rules of their plans.
7. They know that “risk management” while sounding less sexy than “hedge funds” is the business they are in, and they invest in their own business accordingly.
8. They have documented, tested, and third party verified financial controls, compliance processes and audits completed at least quarterly and these reports are sent to at least board members if not investors
9. They invest and improve their infrastructure every year even if the pay-off for doing so could be 5-7 years away, ironically these are sometimes the investments which pay off the soonest though because investors recognize the type of long-term investments being made.
10. They are experts at completing due diligence processes with institutional consultants, family offices and other types of institutional investors. They have professionals who are trained for phone-based pitches and sales and hand-offs during these processes are seamless.
11. They have just as good of marketing materials as the $1B hedge funds because after investing $300,000+ in infrastructure, talent, research, and risk management it would be a waste not to spend $20,000 on presenting it in the right light in a professional manner.
12. They have seen the light that investing in the right areas does produce returns so they re-invest their money even faster and often more efficiently than even small hedge funds on a tight budget
13. They invest in training for their employees and board members who they grow more long-term relationships with than many emerging hedge fund managers might.
14. They are not only aware of the competition but they are watching them. Not in terms of what they are investing in so much as what risk management tools, software, trading tools, and USPs they are employing.
15. While hiring they look for very specific skill sets and a minimum of 7 years of experience in the industry, unless they have a policy of grooming from the ground up. Most fast growing hedge funds we know though like to hire professionals who can hit the ground running and quickly integrate as part of the team. They actually have an HR department or at least one person who is head of talent development and HR related activities, something almost all small hedge funds lack. When they are asked on the phone by institutional consultants if they plan on adding anyone they have a sophisticated intelligent answer instead of the generic, “we may add an analyst within the next 3 quarters.”
16. They understand the “trust by verify” mindset of investors and they make it easy to verify everything.
17. They conduct more due diligence on business partners, investors, and potential employees than some retail investors spend on investing in small emerging manager hedge funds.
18. They realize their success is never going to be built on one software program, capital raising process, or investment trend so they constantly are working to build their 1,000 blocks of competitive advantage and ability.

Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of HedgeFundBlogger.com. You can read the full article on Richard’s blog.

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John Paulson’s hedge fund trades attract a lot of attention because of his ability to profit in downturns. Last year, Paulson made about $2 billion largely by betting that the housing market would crash and this year he has been taking big stakes in struggling banks. In Q2 2009, it was revealed that Paulson was purchasing significant shares of Bank of America and his fund’s latest filing shows that he has bought 300 million shares of Citigroup.

In addition to his investment in partly government-owned banks, it’s also interesting to see the stocks that Paulson has sold. Last quarter, Paulson sold his entire stake in Goldman Sachs and also sold shares in JPMorgan Chase & Co.

“If you are guided by what happened to these companies, you would have to think Citigroup is the most problematical of the major banks,” said Warren Marcus, who ran the bank research department at Salomon Brothers Inc. during the 1970s. “Maybe there is a perception that Citi over time has got a better upside than some of the others.”

Armel Leslie, a spokesman for Paulson & Co., declined to comment on the holdings. The firm has about $29 billion under management that it invests in four strategies: merger arbitrage, event-driven trading, credit and financial services.

Paulson ranked second in fund-manager earnings last year, according to Institutional Investor’s Alpha Magazine. His Credit Opportunities Fund soared almost sixfold in 2007 through wagers that subprime mortgages would sour. He started the Paulson Recovery Fund in 2008 to invest in financial firms hurt by mortgage writedowns. Source

Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of HedgeFundBlogger.com. You can read the full article on Richard’s blog.

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Although hedge funds performed slightly worse than equity markets last month, hedge fund performance still improved. The first three quarters of 2009 are the best in 12 years and, if the last quarter is anything like the first, hedge funds will have made an incredible recovery following one of the worst financial collapses.

Hennessee co-founder Charles Gradante said hedge funds are worried about the market’s rally in light of the economy’s contraction. “Liquidity is driving this market, and that is likely to continue with more than $3 trillion on the sidelines,” he said. “However, liquidity-driven markets eventually dry up.”

The emerging-markets index had the biggest gain among the sectors tracked by Hennessee, posting a 5% rise. Only one index, the short-biased index, saw a decline; it fell 3.1%.

HedgeFund.net said funds’ returns were up 2.7% in September, as total assets under management rose 3% to $1.948 trillion, with performance accounting for much of the increase. Investor flows were positive again for the fifth straight month. So far this year, its hedge-fund aggregate index is up 17% so far this year, the best increase in 12 years.

Hedge funds are continuing to rebound from their worst-ever year in 2008. Funds on average lost about 20% last year, though that was far less than the decline for major stock averages.