With a net worth of over $20 billion, Jim Simons is known as one of the smartest investors ever to take on wall street. There’s more to Simons beyond his net worth and astounding hedge fund track record. Jim Simons may be one of the most interesting people in business you will find. He’s a mathematician who realized pattern recognition could be applied to trading in financial markets. A recently released book titled, ‘The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution’ by author Gregory Zuckerman details how Simons transformed markets over the last 30-plus years. Once you begin to understand Simons and his mathematical trading empire, you can better grasp the astounding success of the Renaissance Technologies Medallion Fund.
Renaissance Technologies, also known as ‘RenTec,’ is a hedge fund based in New York founded by Jim Simons in 1982. By 1978 Simons grew tired of running the Department of Mathematics at Stony Brook University and began trading in the markets. He set up a hedge fund called Monemetrics in a Long Island strip mall and four years later changed the name of the firm to Renaissance Technologies.
The firm is known for its incredible returns over the last three decades and the mystery of how it’s obtained such outstanding performance. How do you get returns, unlike any other hedge fund in existence? By doing things completely different than your competition. RenTec hires mathematicians, statisticians, physicists, and signal processing experts without financial backgrounds. The company is run by scientists for quantitative research where Wall Street experience is frowned on. Some RenTec employees believe that the heard-like mentality among business school graduates is to blame for poor returns in the investment world.
The secrecy surrounding RenTec requires it’s employees to sign lengthy non-disclosure agreements and non-compete documents. Their ability to attract the top scientific minds in the world is a known fact. Mathematician Isadore Singer labeled the Renaissance hedge fund headquarters as the best physics and mathematics department in the world. Not only does the firm attract brilliant minds, but their turnover rate is nearly zero.
The Medallion Fund is widely known as one of the best performing funds of all time. It trounces Warren Buffet over many decades. Peter Lynch, Ray Dalio, and George Soros all trail in average annual returns. The fund’s worst year return was a 21 percent gain from 2001 to 2013—extraordinary results over that long of a period. Especially considering there was a global financial crisis in the middle of those 12 years. Not only that, but the fund has averaged a 71% return before fees from 1994 to 2014.
You might be asking yourself how to gain access to returns like this. The fact is that you can’t. The Medallion Fund has been closed to new investors since 1993 and is only available to employees of the firm.
People refer to the fund as a printing press. Many on Wall Street have difficulty explaining how the enormous returns are accomplished. Studies show that Medallion’s returns are uncorrelated with many major financial market indexes. Momentum, volatility, small caps, distressed debt, none of these categories indicate a relation to the funds returns.
Another factor in the success of the Renaissance hedge fund is the inability of any other fund to duplicate its strategies. Often when a hedge fund or hedge fund manager develops a successful track record, the methods are quickly traced by competing firms and eventually kills the strategy. This has not happened yet at the Medalion Fund. It’s a testament to the secrecy of the firm’s employees inside Renaissance Technologies Medallion Fund.