The 25 best-paid hedge fund honchos on Wall Street pocketed $13 billion in 2015, a sum that exceeds the gross domestic products of many nations, says a just-published annual survey by Institutional Investor’s Alpha magazine.

What’s interesting is that this year’s big winners are more reliant than ever on algorithms to make their money and the huge payout comes in a year that has been more notable for the flight of investors from hedge funds.

“The hedge fund model is under challenge,” billionaire investment guru Leon Cooperman said at the SkyBridge Alternatives Conference earlier this month.

“It’s under assault.” Cooperman,a famous workaholic said. After some of his investors asked for their money to be returned to them, Cooperman had even openly questioned whether it made sense for him to keep his fund open.

However Cooperman didn’t qualify for Alpha magazine’s rich list. He lost money for his investors in 2015, and that meant he didn’t make the grade even though over the years has often topped the rankings and even took home $825m as recently as 2013. Increasingly, so-called active managers are doing very badly when it comes to that apparently simple task: identifying a cluster of investments that will perform far, far better than the broad market, and deliver outsize returns to their investors. Such managers include Cooperman, John Paulson and Bill Ackman, of Pershing Square Capital Management.

The report states that computer models have come to the rescue of the guys who are still making money hand over fist and they are doing so using not their own brains. They have been termed as “quants” or quantitative hedge fund managers. Half of the 25 richest of the year are quants and eight of the ten top earners on Alpha’s list fall into that category.

Either they use them extensively to guide their decision-making, as does Ray Dalio of Bridgewater Associates or the rely exclusively on computer models to tell them when and what to buy and sell, as Jim Simons at Renaissance Technologies – who holds the distinction of being the only person to appear on the list 15 years running.

One day “no human investment manager will be able to beat the computer”, David Siegel, cofounder of Two Sigma Investments, one of those quants had said last year. Siegel qualified for Alpha’s “rich list” for the first time this year and is himself a computer scientist and now manages more than $35bn. He debuted at No 7 with estimated 2015 earnings of $500m.

The big quant funds have posted significantly better results even while CalPers was earning only 7.1% from its portfolio of hedge fund investments in the year before it pulled the plug on them in 2014. When many actively managed hedge funds posted losses or only meager returns, two Sigma’s two benchmark funds both returned 15% (after fees) last year.

It’s to be hoped that investors strive to understand what lies behind some of these “black box” models to the extent that more of those assets start flowing into the hands of the quants.  And even veterans of the investment space manage to clearly understand all of them.

(Adapted from The Guardian)