David Einhorn's Greenlight Capital lost 34% in 2018, its worst year since Einhorn founded it in 1996. It had lost more than 20% in 2015 and made 7% in 2016 and 1.5% in 2017, years in which the S&P 500 gained. In 2022 the same fund returned 36.6% after fees while the S&P 500 lost 18.1%. From May 1996 to the end of 2025, Greenlight's partnerships compounded at 12.7% a year net of fees, against 10.2% for the S&P 500, and earned their investors 6.1 billion dollars.
What makes a hedge fund a value fund
A value investing hedge fund is a private fund that buys securities for less than the manager's estimate of what the business, asset or claim behind them is worth, and holds them until the price closes the gap. Benjamin Graham called the distance between price and value the margin of safety. The hedge fund structure gives the manager tools that a mutual fund limits: short sales, concentrated positions, lockups that keep investors from leaving after a bad year, private and illiquid holdings, and the freedom to sit on cash.
No regulator defines the category. Index provider HFR runs a Fundamental Value index for equity hedge funds alongside a Fundamental Growth index, and in practice the value label covers five approaches:
- Deep value
- Graham's original method: buy statistically cheap stocks, often below the value of the company's assets, and spread the risk across many of them. Walter Schloss ran his partnership this way for 28 years with more than 100 stocks at a time.
- Quality value
- Buy a business with high returns on capital when its price falls below a conservative estimate of its future cash flows, then hold it for years. At the end of 2025 Himalaya Capital had 75% of its reported US stocks in three companies, with 44% in Alphabet.
- Special situations and distressed
- Buy what forced or indifferent sellers are dumping: spinoffs, companies coming out of restructuring, bankrupt companies' debt. Joel Greenblatt's Gotham Capital specialized in spinoffs and corporate restructurings in its first decade.
- Activist value
- Buy a large stake in an undervalued company and press management for change through private talks, a board seat or a proxy fight. The filings activists make once they cross 5% ownership are covered in our guide to 13F and 13D filings.
- Long/short value
- Own cheap stocks and sell short expensive ones. Greenlight describes its book as longs that are cheap and misunderstood paired with shorts that are overvalued, poorly understood and deteriorating.
The value partnerships of the 1950s and 1960s
Warren Buffett worked for Graham at Graham-Newman before starting the Buffett Partnership in 1957. He charged no management fee and took a quarter of each year's gains above 6%, a structure known as 0/6/25. Mohnish Pabrai copied it for the funds he started in 1999: no fee is due unless returns exceed 6% a year, the manager takes a quarter of the excess, and a high-water mark applies. Most hedge funds charge a management fee on assets plus a share of profits, as our article on hedge fund fees explains.
In May 1984, at Columbia Business School's event for the 50th anniversary of Graham and Dodd's Security Analysis, Buffett presented the records of investors who had learned Graham's method. The talk was published that autumn as The Superinvestors of Graham-and-Doddsville, and most of the records belonged to private partnerships:
| Partnership | Manager | Period | Partnership, per year | Limited partners, per year | Market, per year |
|---|---|---|---|---|---|
| Buffett Partnership | Warren Buffett | 1957 to 1969 | 29.5% | 23.8% | 7.4% (Dow) |
| Pacific Partners | Rick Guerin | 1965 to 1983 | 32.9% | 23.6% | 7.8% (S&P 500) |
| Perlmeter Investments | Stan Perlmeter | 1965 to 1983 | 23.0% | 19.0% | 7.0% (Dow) |
| WJS Limited Partners | Walter Schloss | 1956 to 1984 | 21.3% | 16.1% | 8.4% (S&P 500) |
| TBK Limited Partners | Tom Knapp and partners at Tweedy, Browne | 1968 to 1983 | 20.0% | 16.0% | 7.0% (S&P 500) |
| Charles Munger, Ltd. | Charlie Munger | 1962 to 1975 | 19.8% | 13.7% | 5.0% (Dow) |
The gap between the partnership and limited partner columns is the general partner's share of the profits. Buffett's argument was about selection: he had known these managers and their method before their results came in, so the group was chosen in advance and could not be explained as the lucky survivors of a large field.
Seven value hedge funds and how each invests
| Firm | Founded | Founder | Approach |
|---|---|---|---|
| Gotham Capital | 1985 | Joel Greenblatt | Special situations, later diversified long/short |
| Baupost Group | 1982 | Seth Klarman | Deep value with large cash holdings |
| Greenlight Capital | 1996 | David Einhorn | Long/short value plus a macro book |
| Himalaya Capital | 1997 | Li Lu | Concentrated quality value in the US and Asia |
| Pabrai Investment Funds | 1999 | Mohnish Pabrai | Value with 0/6/25 fees |
| ValueAct Capital | 2000 | Jeff Ubben, Peter Kamin, George Hamel | Activism through board seats |
| Pershing Square | 2004 | Bill Ackman | Concentrated activist portfolio |
Our list of hedge funds covers the largest firms in macro, quant, credit and the other strategies.
Baupost Group and the cash position
Klarman started Baupost in 1982 with 27 million dollars. When he finds too little that is cheap, the firm holds cash and gives money back. At the end of 2013 it planned to return about 4 billion dollars for lack of opportunities. In 2017, managing about 30 billion dollars, it held 42% of its assets in cash and told investors it would return capital for the third time, after 2010 and 2013.
Greenlight Capital, short sales and a macro book
Einhorn's public short campaign against Allied Capital became his book Fooling Some of the People All of the Time, listed in our guide to hedge fund books, and he was short Lehman Brothers months before it failed in 2008. In 2025 the fund averaged 89% of capital long and 50% short, and its macro book, partly a hedge and partly a set of macroeconomic bets, produced all of the year's return while the stock book lagged. The fund made 9.0% that year against 17.9% for the S&P 500.
Pershing Square and nine-stock portfolios
Ackman founded Pershing Square on January 1, 2004. Its listed fund, Pershing Square Holdings, began trading in Amsterdam in October 2014 and in London in May 2017. On June 30, 2020 it held nine companies.
To protect that portfolio in the pandemic sell-off, Pershing Square used a separate trade. In late February and early March 2020 it bought credit default swap protection on investment grade and high yield credit indices that cost about 27 million dollars. By March 23 it had sold the protection for proceeds of 2.6 billion dollars and reinvested most of the money in Agilent, Berkshire Hathaway, Lowe's and other holdings after their share prices had fallen. Pershing Square Holdings' net asset value rose 70.2% in 2020, against 18.4% for the S&P 500.
In April 2026 Ackman added a second listed fund, Pershing Square USA, which began trading on the New York Stock Exchange on April 29 and charges a 2.0% management fee with no performance fee.
ValueAct's board seat, Gotham's spinoffs and Himalaya's BYD stake
ValueAct takes large stakes and seeks a voice in the boardroom. In March 2014 its president, Mason Morfit, joined Microsoft's board and audit committee, at a time when ValueAct managed more than 14 billion dollars.
Greenblatt's Gotham Capital compounded at 50% a year from 1985 to 1994, or 34.4% after fees, then returned all outside capital. Gotham now runs long/short private funds, mutual funds and ETFs.
Li Lu founded Himalaya in 1997 and bought into the Chinese company BYD in 2002, shortly after its listing. Charlie Munger put 88 million dollars into a Himalaya fund in 2004, on condition that it stayed closed to new investors.
What the value slump of 2007 to 2020 did to these funds
The value factor, the return of cheap stocks over expensive ones in Eugene Fama and Kenneth French's data, peaked in December 2006 and lost 57.8% over the next 13 years and 9 months, with 33.7% of that in the first nine months of 2020. Our factor investing article traces the drawdown and its causes from the Kenneth French data library.
Hedge funds that call themselves value did not follow the factor down. HFR's indices of value and growth equity hedge funds, set against the S&P 500 with dividends:
| Year | HFRI Fundamental Value | HFRI Fundamental Growth | S&P 500 with dividends |
|---|---|---|---|
| 2013 | 19.69% | 11.20% | 32.15% |
| 2014 | 1.91% | -0.19% | 13.52% |
| 2015 | -1.51% | -2.83% | 1.38% |
| 2016 | 7.26% | 4.16% | 11.77% |
| 2017 | 13.40% | 18.86% | 21.61% |
| 2018 | -9.13% | -9.87% | -4.23% |
| 2019 | 16.33% | 13.22% | 31.21% |
| 2020 | 14.62% | 21.84% | 18.02% |
| 2021 | 14.61% | 11.11% | 28.47% |
| 2022 | -8.11% | -17.68% | -18.04% |
| 2013 to 2022, cumulative | 86.5% | 51.8% | 222.8% |
Hedge fund returns are from the HFR Media Reference Guide of January 2023, net of fees. S&P 500 returns are Aswath Damodaran's series at NYU Stern, and the cumulative rows are our calculation.
The value hedge fund index beat its growth counterpart in eight of the ten years and compounded 86.5% to 51.8%. Against the stock market the gap was wide: 6.4% a year for value hedge funds and 12.4% for the S&P 500. These managers also own companies that a book-to-market sort places in the growth portfolio. Amazon is the largest position in Baupost's 13F for June 30, 2026, and Alphabet was Himalaya's at the end of 2025.
Several single funds lost far more than the index in the same years:
- Pershing Square Holdings lost 20.5% in 2015, 13.5% in 2016, 4.0% in 2017 and 0.7% in 2018, while the S&P 500 gained 1.4%, 11.9% and 21.8% before losing 4.4% in 2018. Its 58.1% gain in 2019 was the largest since the strategy started in 2004.
- Greenlight Capital lost more than 20% in 2015 and 34% in 2018. Einhorn wrote to investors that the worst of his mistakes was failing to see that SunEdison was a fraud in 2015.
- ESL Investments, Eddie Lampert's fund, managed 16.5 billion dollars in 2007 and 653 million dollars at the end of 2016, with Sears about a third of the portfolio. Sears filed for Chapter 11 bankruptcy in October 2018.
Einhorn's explanation for value's long run behind the index is passive investing. In February 2024 he told Barry Ritholtz's Masters in Business podcast that markets are fundamentally broken, because index funds buy without any view on value, and that Greenlight had changed its strategy in response. The value factor's recovery was short: HML gained 22.2% in 2021 and 31.7% in 2022, then lost 11.1% in 2023 and 7.0% in 2024, and in July 2026 stood 29.6% below its 2006 peak.
Following value hedge funds through 13F filings
A manager with more than 100 million dollars in US-listed stocks files Form 13F every quarter, up to 45 days after the quarter ends. Our guide to reading 13F and 13D filings covers how to compare two quarters and why share counts matter more than dollar values. For value funds the form leaves out four kinds of position:
- Short positions. Greenlight's average short book of 50% of capital in 2025 appears in no 13F.
- Hedges and credit derivatives. Pershing Square's 2020 credit default swaps, the trade that produced 2.6 billion dollars, appear in no 13F. The fund reported them in its own interim report.
- Foreign-listed shares. Himalaya's BYD investment is in Hong Kong-listed H shares, which fall outside the 13F list of US-listed securities.
- Cash, debt, private deals and real estate. Baupost's 13F for June 30, 2026 lists 23 stocks worth about 5.4 billion dollars. The firm managed about 30 billion dollars in 2017.
Pershing Square's listed funds publish their net asset value weekly and list their holdings in annual and interim reports. Those listed funds and Greenlight Re let investors own the strategy without qualifying as an accredited investor, as our article on investing in hedge funds with little money explains.
This article is general information, not investment advice.
Frequently asked questions
Which hedge funds are value investors?
The best-known are Seth Klarman's Baupost Group, founded in 1982, David Einhorn's Greenlight Capital (1996), Bill Ackman's Pershing Square (2004), ValueAct Capital (2000), Joel Greenblatt's Gotham Capital (1985), Li Lu's Himalaya Capital (1997) and Mohnish Pabrai's Pabrai Investment Funds (1999). They share the method of buying below an estimate of intrinsic value, and differ in how they apply it: Baupost holds large amounts of cash when little is cheap, Greenlight sells short, Pershing Square and ValueAct push management for change, and Himalaya holds a handful of stocks.
Did value hedge funds lose money when value stocks lagged?
As a group they made money and trailed the stock market. From 2013 to 2022 the HFRI Fundamental Value index compounded 86.5%, ahead of 51.8% for the HFRI Fundamental Growth index, while the S&P 500 returned 222.8% with dividends. Some individual funds lost heavily: Greenlight lost more than 20% in 2015 and 34% in 2018, and Pershing Square Holdings lost money every year from 2015 to 2018.
Was Warren Buffett a hedge fund manager?
From 1957 to 1969 he ran the Buffett Partnership, a private investment partnership with the same legal shape as a hedge fund. It charged no management fee and paid Buffett a quarter of each year's gains above 6%. The partnership compounded at 29.5% a year before his share and 23.8% for limited partners, against 7.4% for the Dow. Berkshire Hathaway, which he ran afterwards, is a listed holding company.
Can you invest in a value hedge fund without being an accredited investor?
The funds themselves accept only accredited or qualified investors, but a few value managers run listed vehicles that anyone with a brokerage account can buy. Pershing Square Holdings trades in Amsterdam and London, Pershing Square USA has traded on the New York Stock Exchange since April 29, 2026, and Greenlight Re, a Nasdaq-listed reinsurer, has most of its investments managed by Einhorn's firm. Listed funds can trade well below the value of their assets: Pershing Square Holdings traded at a 33% discount in August 2020.
How can I see what value hedge funds own?
Any manager with more than 100 million dollars in US-listed stocks files Form 13F with the SEC every quarter, within 45 days of the quarter's end, and the filings are free on EDGAR. They show long positions in US-listed shares only. Short sales, credit hedges, foreign-listed shares, private deals, debt and cash are left out, which for some value funds is most of the portfolio.