Oh, to be a hedge fund manager. In the upper echelons of an industry where 8-figure annual incomes are commonplace. And the elite, like Ken Griffin of Citadel Asset Management, pocket more than $1 billion. Do they earn it? They better, or else find a different line of work.

For the record, Citadel has now chalked up around $80 billion in cumulative profits for its investors since inception in 1990.

These brilliant tacticians generally avoid the limelight and tend to live rather secretive lives. But you might be familiar with some of their playthings. David Tepper at Appaloosa Management bought the NFL’s Carolina Panthers. Steve Cohen owns the New York Mets. Until recently, Michael Platt lounged on the legendary 250-foot superyacht Arrow.

He sold it and upgraded.

These men (and women) didn’t rise to the top by sheer accident. Bill Ackman graduated magna cum laude from Harvard. Jim Simons received a bachelor’s degree from MIT and then a PhD in Mathematics from Berkley. David Shaw was a double major in math and applied physics who became an Ivy League computer science professor. Since conquering Wall Street with quantitative trading algorithms, he has begun toying with computational biochemistry.

Smart cookies. Generous philanthropists as well, returning billions to a variety of worthy causes.

How do they do it? Well, the inner workings of hedge funds are something of a mystery to most. On the surface, they are pooled investment vehicles like mutual funds. But any similarity ends there. Hedge funds typically use speculative (and often arcane) tactics and strategies to reach their goals. And they utilize some rather exotic instruments, like credit default swaps and other derivatives.

Hedge funds can speculate on interest rates, engage in short sales, or make leveraged foreign currency bets. Some focus on spinoffs, bankruptcies, and distressed debt. Others use options spreads and straddles to profit from implied volatility. There is a whole class of convertible bond arbitrage funds that “delta hedge and gamma trade” to exploit pricing inefficiencies.

Because they are risky, opaque, and sometimes illiquid, hedge funds aren’t really meant for ordinary investors like you and me. We are the hoi polloi. These funds are invitation-only, reserved for “accredited investors” that meet specific income and net worth requirements. It often takes a $1 million minimum just to get in the door.

And the fees can be exorbitant. The typical arrangement is an asset management fee of 2% plus a performance fee of 20% of any profits. Now, these strategies don’t always work. Some backfire spectacularly and sustain heavy losses. But wealthy investors and institutions (who often weigh performance on a risk-adjusted basis) open their checkbooks expecting big results.

And they get them.

— Stanley Druckenmiller’s Duquesne Capital Fund famously delivered 30% average annual returns for thirty years.

— Scion Asset Management has posted a cumulative gain of 97% over the past three years. It’s led by Michael Burry, the guy who inspired the “Big Short” film by famously betting against the subprime mortgage market.

— While the S&P 500 tanked 18% in a bear market in 2022, Citadel’s flagship Wellington fund climbed 38%, generating a profit of $16 billion. It has outrun the S&P 500 nearly 15-1 since inception.

— A mathematician from MIT who spent some time as a codebreaker with the National Security Agency (NSA) established a quantitative hedge fund called Medallion in 1988. Using proprietary computer algorithms, it chalked up an astronomical 66% annualized return over the next three decades.

The hedge fund industry attracts some of the best and brightest talent. And considering these shops have been entrusted with more than $5 trillion in assets, they have no shortage of financial resources at their disposal. Who wouldn’t want to peek over the shoulders of these out-of-the-box thinkers and see which stocks/sectors have caught their eye?

Given their secrecy, it’s not easy. But we have a valuable tool to pry open the books. The Securities and Exchange Commission (SEC) mandates that all institutional money managers with at least $100 million in assets disclose their holdings and recent buy/sell activity in Form 13F filings. These reports, which must be filed shortly after the end of each quarter, provide insights into what the smart money is doing.

Keep in mind, there are roughly 20,000 hedge funds in the United States alone. But I’m not interested in the new and untested, or those with middling long-term results. So I’ve limited my research to top-tier funds with the most assets and the strongest relative performance, scrutinizing their portfolios from top to bottom — emphasizing high-conviction picks that are still being accumulated rather than whittled down.

What did I find? Well, John Paulson and several of his peers have a clear bias towards gold, timber, oil and other hard commodities right now.

Others continue to favor the tech sector. Nvidia (NSDQ: NVDA) is a firmly embedded top-five position in dozens of premier funds. I noticed the same thing a year ago when the rapid rollout of Artificial Intelligence (AI) tools and platforms propelled the the graphics card supplier to a $1 trillion market valuation. Today, it’s worth more than $3 trillion.

While some funds have “window dressed” their portfolios with a recent stake in NVDA, others have been on board since the stock first began its 2,169% surge five years ago.

If this were a popularity contest, NVDA would likely wear the crown. But quite a few votes have also been cast for stocks like Citigroup (NYSE: C) and Uber Technologies (NSDQ: UBER).

Let’s step back, though, and examine the bigger picture. After sifting through piles of transactions involving hundreds of millions in concentrated bets, here are two macro takeaways that appear to be influencing most of the pros.

1.) Travel and Entertainment on the Upswing
Pent-up vacation demand that first blossomed in 2022 is showing no signs of slowing, which explains why hedge funds are gravitating to airlines, hotels, casinos, booking agents, outdoors retailers and others within this sphere.

Robert Robotti (whose fund stands atop the trailing 3-year leaderboard) has taken a shine to Travel + Leisure (NYSE: TNL). David Tepper is accumulating large blocks of both Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NSDQ: WYNN). The Horizon Kinetics fund sees upside in concert promoter Live Nation (NYSE: LYV).

Bill Ackman at Pershing Square has made an outsized bet on Hilton Worldwide (NYSE: HLT). Paul Tudor Jones just established a new position in jet manufacturer Spirit Aerosystems (NYSE: SPR). And Renaissance Technologies is doubling down on Carnival Cruise Lines (NYSE: CCL), which I should add is seeing record highs in booking volume, ticket pricing and customer deposits.

What a reversal from the pandemic, when these same funds had $3 billion in short wagers against the travel industry.

2.) Charge it, Please
It’s no secret that Warren Buffett is a big fan of American Express (NYSE: AXP), amassing a $40 billion stake over the years. About 60 prominent hedge funds and other institutional investors share that same enthusiasm, from Ken Griffin to David Shaw to Jeremy Grantham.

The other members of the credit/debit payment processing oligopoly have ample support as well. Valley Forge Capital now holds nearly 1.5 million shares of Mastercard (NYSE: MA), its third largest position.

Izzy Englander’s Millennium just picked up another 9,000 shares of Visa (NYSE: V). With more than four billion cards in circulation, Visa can handle 65,000 sales transactions per second – taking a small cut every time. The company processed 55 billion transactions last quarter, cementing its role as “the center of money movement.”

Quite a few funds hold all three of these. And why not? Across the country, U.S. merchants now handle about $10 trillion in yearly card sales volume, generating well over $100 billion in fees for card processing networks. And there is a long growth runway ahead as the world shifts toward electronic transactions.

Which brings us to the intersection of these two trends.

From Traveler’s Checks to Tap-and-Go
Peek under the hood of Michael Burry, Steve Cohen and Ken Griffin’s portfolios, and you’ll find a common holding. It’s one of my personal favorites as well. The company describes itself as a “leader in commerce-enabling technology.”

To illustrate, look no further than Madison Square Garden. The famed arena hosted 960 live events in fiscal 2024. Not just New York Knicks and Rangers games, but also Billy Joel concerts, UFC fights, and many other bookings. Patrons at those events shelled out $162 million in food, beverage, and merchandise sales.

And like most other venues, it’s 100% cashless. That means a mountain of digital transactions in the span of a few hours… and hefty payment processing fees for vendors that can handle this kind of workload.

Enter Shift4 Payments (NSDQ: FOUR), which provides point-of-sale terminals and retail/concession payments at Yankee Stadium, Soldier Field and countless other arenas and gathering halls. The company also works with hotel resorts, airlines, ski resorts, theme parks and many other clients.

Not one, but two tailwinds.

As you can see, aggregate payment volume has already surged 10-fold from $4 billion to $40 billion per quarter. Even better, the company collects not only processing fees but also recurring software licensing subscriptions.



Think about every gate admission and/or cash register transaction at Yosemite National Park. Or Caesar’s Palace. Or Disney on Ice shows. This is a disruptive business that has consistently posted double-digit revenue growth every year in its 25-year history, raising guidance for 11 consecutive quarters.

Meanwhile, as expenses scale, free cash flow (FCF) has exploded from negative territory to nearly $400 million over the past 12 months. And the shares are finally starting to align with the fundamentals.

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