Bridgewater Associates, the world's biggest hedge fund, handed clients $13.8 billion last year, catapulting founder Ray Dalio above long-time rivals such as George Soros and John Paulson as the industry's biggest money maker in 2011, research showed.

Bridgewater's flagship Pure Alpha fund, which runs $71.9 billion, has now made clients $35.8 billion after fees since its inception in 1975, according to research from hedge funds investor LCH Investments, part of the Edmond de Rothschild Group.

The wider hedge fund sector endured a torrid 2011 and lost clients a total of $123 billion after most managers were wrongfooted by volatile markets, the research showed. Paulson alone lost clients nearly $10 billion last year.

Bridgewater's huge return to clients, which comes on the back of its fund's strong performance, will likely mean a bumper paycheck for billionaire Dalio, who founded the Westport, Connecticut-based firm out of a two-bedroom apartment in 1975.

The emergence of Bridgewater Pure Alpha and the gains they have reported in the past two years are outstanding and demonstrate the great opportunities that exist in macro investing at this time, said Rick Sopher, chairman of LCH Investments.

Macro funds, which make calls on global economic events with bets on bonds, currencies, commodities and equities, are some of the industry's most celebrated, turning veteran managers like Louis Bacon or Paul Tudor Jones into some of the wealthiest investors in the world.

Macro investing is notoriously difficult, but the best managers are able to find opportunities, especially in troubled markets, Sopher said.

With the payout to investors, Bridgewater -- which employs 1,200 people -- can also boast that it made far more money for clients than most Wall Street giants in 2011. Goldman Sachs made a $2.5 billion profit, while Morgan Stanley reported income of $4.2 billion.

PAULSON DOWN, BREVAN UP

Bridgewater's 2011 returns move the firm up from third in 2010 for all-time returns. George Soros's Quantum Endowment Fund, which was founded in 1973, lost its first position and now ranks in second, while John Paulson slipped to third place after his funds racked up huge losses last year from betting on an economic recovery that never materialized.

Despite last year's losses, early-stage Paulson's investors have still made a collective $22.6 billion since the New York-based fund was founded in 1994, the research shows.

Overall, the top ten combined made investors $3.7 billion last year, meaning most of these big-name managers lost clients money.

London-based Brevan Howard, founded by ex-Credit Suisse trader Alan Howard in 2003, bucked this trend, handing clients $3.2 billion after its flagship fund made double-digit gains.

This moved the $26.5-billion fund up to fifth place for all-time gains, up from eighth last year, the research shows.

The data also showed the extent to which hedge fund returns are dominated by the biggest managers.

Since inception, the top 10 managers have generated gains, net of fees, of $185.2 billion, equating to 39.1 percent of the total $474 billion in net gains made by all single manager funds since they started.

LCH Investments, which runs one of the oldest fund of funds dating back to 1969, compiled the data through a combination of manager contacts, audited and management reports, internal estimates and other confidential sources, it said.

(Reporting by Tommy Wilkes; Editing by Sinead Cruise and Greg Mahlich)

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