Inside Renaissance Technologies Medallion Fund

With a net worth of over $20 billion, Jim Simons is known as one of the smartest investors ever to take on Wall Street. By creating the Renaissance Technologies Medallion Fund, he’s unleashed one of the greatest profit machines in the history of money management.

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. A former NSA codebreaker, MIT math professor, philanthropist, and businessman. Primarily, 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.

The Firm that is RenTec

Renaissance Technologies, also known as ‘RenTec,’ is a hedge fund based in East Setauket, 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. In the early days, Simons was interested in developing a trading system with quantitative models.

By focusing on risk management using a quantitative trading strategy to manage money, Simons believed obtaining higher than average returns was possible. He set up a hedge fund called Monemetrics in a Long Island strip mall and four years later changed the firm’s name 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.

Physicists, Mathematicians, and Statisticians

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 its 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 world’s best physics and mathematics department. Not only does the firm attract brilliant minds, but its turnover rate is nearly zero.

The Renaissance Medallion Fund

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 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 outside investors since 1993 and is only available to employees of the firm.

The Renaissance Technologies Medallion Fund Printing Press

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, competing firms quickly trace the methods and eventually kill 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.

A rare interview by Jim Simons at MIT where he discusses his thoughts on finance.

Renaissance Institutional Equities Fund

There are other funds inside Renaissance besides the Medallion Fund. If you’re searching for the largest fund open to new investors, it would be the Renaissance Institutional Equities Fund. The primary strategy of the fund is long-term capital growth through appreciation in a diversified portfolio of foreign companies.

The fund includes equities in Europe, the Pacific Rim, and the Far East. A few of the fund’s top holdings include Keyence Corp, Novo Nordisk, Roche Holding, and Taiwan Semiconductor. The fund includes a low minimum investment requirement of $500 and more than $1.6 billion in assets under management.

Recent Concerns Over Returns

A few people have been raising eyebrows over recent Rentec returns. The Securities and Exchange Commission has been especially interested recently. Renaissance’s Medallion Fund closed to outside investors and available to RenTec employees only, has been absolutely crushing the market.

Other funds inside Rentec have had a difficult year. For example, the Renaissance Institutional Diversified Alpha fund lost 33% over the last year. The Institutional Diversified Global Equities Fund lost over 22%.

The Medallion Fund Continues to Dominate

The negative return from Rentec public funds contrasts with the flagship Medallion Fund which returned a gain of 76% over the same time period. These are huge discrepancies between funds open to the public and a fund closed to everyone except Rentec employees.

The main issue is the RenTec Medallion Fund might be using a superior algorithm, while a limited partner of other funds sees large losses. When everything is based on computer models, there’s an obvious complaint among those not included in certain funds producing the majority of the returns.

The Founder Jim Simons and Renaissance

When James Simons started his investment firm over forty years ago, I’m sure he couldn’t have imagined the amount of success in his future. Rentec annualized returns have been second to none over the last few decades.

A recent interview with Simons in The Wall Street Journal describes his mentality while building Rentec. He was quoted as saying, “I don’t want to have to worry about the market every minute. I want models that will make money while I sleep.”

Superior Returns Above All

Not only was Simons able to build models that made money around the clock, but he was able to beat the stock market at its own game. His net returns have made him more money than almost anyone in the history of wall street.

Other than Warren Buffett and a handful of others, Simon’s hedge fund performance stacks him at the very top of the list of greatest fund managers of all time.

Controversy Follows the Medallion Fund Success

You don’t get to the top of Wall Street without some controversy, and RenTec is no different. Former co-CEO Robert Mercer was forced to step down in 2017 because of his support in right-wing political causes. Peter Brown is now the sole CEO.

The company has also been investigated for tax avoidance. Scrutiny over profits from short-term positions and rapid trading used in lower-taxed, long-term capital gains also made headlines. Some estimates are the tax avoidance loophole used at Renaissance saved the firm $6.8 billion in taxes over a decade or more.

Sealed Lips and Really Big Ships

Some former employees of Rentec have made comments regarding the firm’s inner workings, but there’s really not much detailed information out there. RenTec has air-tight confidentiality agreements put in place on all past employees and former partners.

The remarkable performance, stellar monthly returns, and decades of superior past performance are really the only thing that matter on Wall Street. The fund’s returns have solidified the quant revolution in money management, as many others have attempted to copy RenTec’s quant funds over the years.

If you are looking for clues to what has made Simons the King of the Wall Street Hill, look no further than his 222-foot long yacht, named, “Archimedes.” The ancient Greek mathematician, known as possibly the greatest mind of all time, once said something to this effect –

Give me a firm place to stand, and a lever long enough, and I shall move the world.

archimedes Renaissance Technologies Medallion Fund
Jim Simons 222-foot Superyacht, the ‘Archimedes’

The Great Renaissance Technologies Medallion Fund

Whatever the medallion’s strategy is, from high frequency trading to speech recognition software to quant algorithms trading basket options, it’s been working for decades. It’s difficult to say when, or if, we’ll ever know the details of exactly how Medallion’s spectacular returns were produced.