It looks like Renaissance Technologies has enjoyed mixed success since founder Jim Simons retired at the end of last year.
Renaissance, of course is that super-secretive quant firm and Simons is the math whiz who likes to hire mostly math and science Ph.D’s instead of the typical finance types from Ivy League schools who were responsible for screwing up the global economy.
Simons, who remains a non-executive chairman, received his bachelor’s degree in math from the Massachusetts Institute of Technology (MIT) and his PhD in math, from the University of California, Berkeley, served in the math department at SUNY-Stony Brook and is the founder and Chairman of Math for America. You get the theme.
So far this year, his legendary Medallion fund is up a seemingly un-Medallion-like 12 percent through most of April. Remember, this is a fund that has averaged close to a 45 percent annualized net return since it was created in 1988, and these days it charges a 5 percent management fee and 44 percent performance fee.
So, if you annualize this year’s performance, the 36 percent return would put it on a track for its worst year since 2005, when it was up 29.5 percent. Keep in mind the fund does better during market volatility and for the most part, this year we have seen a more directional type market with less volatility than we have seen recently.
Of course, mortals like me would sign a contract right now that guarantees a 36 percent return on my money every year until I die. And given that Medallion, closed to outsiders for years, only includes partners and employees money, I’m sure they would be happy with a 36 percent return as well, even though it is shy of what they are accustomed to. Just a guess.
Now, if you add back all of those fees, on a gross basis, Medallion is up around 24 percent so far this year; annualized it works out to 72 percent. Suddenly, it doesn’t sound too shabby. A typical hedge fund that charges 20 percent and is up 72 percent gross has a net return of closer to 57 percent.
Simons and his brainiacs won’t say how they do it, though. Something to do with computerized trading, high frequency trading, trying to make small gains on a large series of rapid trades. The Wall Street Journal said recently that 75 percent of Medallion’s earnings come from stock trading. Otherwise, you don’t get much out of them about their secret sauce.
The bigger headline regarding Renaissance is the return to profitability of Renaissance Institutional Equities Fund International L.P. (RIEF). It is up 7.5 percent, in line with the S&P 500. Since it was created in August 2005, it has been the most un-simonsian of the funds, having lost money the past three years.
However, it is still not doing what it was designed to do--outperform the S&P 500 index, gross of fees, by 400 to 600 basis points over a rolling three-year period with lower volatility.
Renaissance Institutional Futures Fund (RIFF) is up about 8.5 percent so far this year. It rose 5 percent last year but was down 12 percent in 2008.
The positive performance of both RIEF and RIFF may mean they will not be shut down anytime soon, which Peter Brown and Bob Mercer, the new co-chief executives hinted was a possibility in a published report earlier this year.
Stephen Taub , who has covered the hedge fund industry for 30 years, is a contributing editor to Institutional Investor and Absolute Return-Alpha magazines.
