Renaissance Technologies is an odd name for a hedge fund management company. But what it lacks in a name, it makes up in performance. In fact, its Medallion Fund has performed so well that Jim Simons returned all outside investor capital and manages the fund purely for himself and the employees of his firm. It is one of the best performing hedge funds of all time and if Simons had as many years to compound as Warren Buffett, I would wager that he would easily surpass Carlos Slim as the world’s richest man.
The Medallion Fund is the flagship hedge fund of Renaissance Technologies; it uses sophisticated quantitative algorithms and the latest in computer hardware to detect fleeting anomalies in the financial markets of the world and profit from them ahead of anyone else. It trades almost every financial asset under the sun and in fact the sun never sets on its portfolio because it is active in almost all of the world’s financial markets.
Simons’ Medallion Hedge Fund uses exceptionally complex mathematical models to predict future price changes in liquid financial instruments. Its computers suck in an enormous quantity of time series data and through complex mathematical transformations these computers filter out the noise and look for non-stochastic price movements that can be predicted in advance.
Now you might think that George Soros’ Quantum Fund was the top dog in the 1990s, but Renaissance Technologies’ Hedge Fund blew him out of the water. For the eleven years ending in 1999 the Medallion Fund returned a staggering 2,478% compared to Soros’ relatively paltry 1,710%.
Renaissance Institutional Equities Fund (RIEF)
The Renaissance Institutional Equities Fund or RIEF as it is also known is another of Renaissance Technologies top performing hedge funds. It utilizes some of the mathematical techniques that made the Medallion Fund so successful and applies them to primarily large cap equities. Its goal is to beat the S&P 500 by four to six percent per year while taking less risk. The RIEF was launched in the middle of 2005 and performed decently until 2008.
In 2008, the RIEF hit a rough patch and lost 16%. This losing trend continued in 2009 when it lost an additional 6%. But in 2010, it bounced back with a 16.5% return.
The Renaissance Institutional Equities Fund is designed for institutional investors and it has a theoretical capacity of $100 billion. This is a staggering number and it boggles the mind to think about managing that much money. Sure, a hedge fund manager can deliver staggering returns when the assets under management are low, but to continue delivering great returns on a fund this size would be quite an accomplishment. But if anyone can do it, I’m sure Jim Simons can.
Renaissance Technologies: A Brief History
Jim Simons started Renaissance Technologies all the way back in 1982. If he had started earlier, say the 1950s like Warren Buffett, there is a good chance that he would be the world’s richest man, because his annualized investment performance beats Buffett hands down. It’s just that Buffett had a few extra decades to compound his money.
Prior to 1982, Simons was primarily an academic. He taught math at MIT and Harvard and he later was appointed the chairman of the mathematics department at Stony Brook.
Simons put his mathematical training to a much more lucrative use when he started Renaissance Technologies in 1982. At Renaissance, Simons became one of the first pioneers to apply advanced mathematical and statistical concepts to the financial markets and this proved to be quite remunerative. In fact, since 1989, the Medallion Fund has returned 35% after fees, which is quite an amazing number that bests both Buffett and Soros. And what is all the more amazing is that Renaissance’s fees were some of the highest in the hedge fund industry, with management fees approaching 5% and performance fees approaching 40%. So the raw return before fees was enormous to say the least.
Apart from his accomplishment in finance, Jim Simons has made quite a few contributions to academia as well. Perhaps his biggest contribution apart from his multi-million dollar contributions to Stony Brook is the Chern-Simons theory which mere mortals like us may never understand. It has something to do with quantum field theory and involves a level of mathematical abstraction that probably requires a genius IQ to understand.
Simons has also been doing quite a bit of philanthropic work. He started the Paul Simons Foundation to fund educational and health initiatives and he is funding healthcare initiatives in Nepal through the Nick Simons institute. In 2006, he kept the Relativistic Heavy Ion Collider running by donating $13M to the Brookhaven National Laboratory and he also donated $25M to the Stony Brook Foundation.
In 2008, Simmons made the largest single donation to a New York University when he donated $60M to fund a center for physics and geometry at Stony Brook.