3 Biggest Tech Hedge Funds Gained in 2000

Another reason why the rich keep getting richer: The three biggest “hedge” funds that target technology stocks all posted gains in 2000, despite the carnage in the tech sector overall.

Tech hedge funds managed by Pequot Capital Management, Bowman Capital Management and Galleon Partners Management gained 34%, 22% and 16% last year, respectively, according to fund investors who were surveyed by Bloomberg News.

By contrast, the average tech-sector mutual fund plunged 33.2% last year.

Hedge funds are private investment funds generally available only to wealthy individuals and to institutions.

The tech-focused hedge funds took advantage of their ability to make money in both up and down markets, buying stocks they expected to rise and “shorting” shares they bet would decline.

That flexibility helped spare them the declines suffered by mutual funds, which typically remain fully invested.

“Mutual fund companies have a bias to the [buy-and-hold] side and have managers whose experience is on [that] side,” said Bruce Ruehl, chief investment strategist at Tremont Advisers Inc., a hedge fund consultant based in Rye, N.Y.

Many mutual fund managers don’t have the experience of holding cash when markets are volatile or “taking their losses so they can fight again another day,” he said.

Hedge fund managers come from a different world: They tend to move much faster and try to avoid large losses.

“The bigger technology hedge funds got hit early in the year [2000], but they learned a lesson from that,” Ruehl said. The funds reduced their exposure to the tech sector and began to short some of the stocks, profiting as the shares tumbled, analysts say.

Westport, Conn.-based Pequot is the largest hedge fund manager in the world, with $13 billion in total assets across a number of funds.

Bowman Capital, with about $5.5 billion in assets, was founded by former Fidelity Investments manager Lawrence Bowman. It is based in San Mateo, Calif.

The $4-billion Galleon Partners fund is run by Raj Rajaratnam in New York.