RenTech: A Tale of Two Funds

The problems in the world of quants has been well documented over the past year. Goldman Sachs' Global Alpha fund's assets have dropped precipitously and Goldman alum Cliff Asness has witnessed a tough time of late; plans to take his shop public (AQR) have been shelved as returns in several of his strategies fell well short of historical norms.

In contrast, the returns of Renaissance Technologies Institution Equities fund have been better, but far from good. Two years ago James Simon's might have had a shot at Wall Street's first $100 billion fund, but those hopes have been dashed as he suffers through what might well be the largest drawdown in his career:

Simons's $18 billion Renaissance Institutional Equities Fund declined 12 percent since its value peaked last May, investors with direct knowledge of the situation said. Bloomberg

The returns of Simons' RIEF, a 175/75 long/short equity strategy, contrast sharply with the returns of his Medallion Fund, which resembles many Global Macro Strategies, in that it trades commodities, currencies and bonds as well as equities.

Investors, who have been clamoring to invest with Simons for years, cannot be happy with the returns, although they have been far better than several competing strategies, as Trader Monthly noted in their Top 100 roundup:

Although his Renaissance Institutional Equities Fund was down by as much as 8.7 percent at one point during the summer of quant discontent, Simmons and his legion of programmers battled back. When the dust settled, the fund (around $22 billion as of the end of 2007) partially regained its footing, finishing the year slightly down.

RenTech has witnessed redemptions; assets at RIEF are down nearly $11 billion dollars from peak levels if the rumor mill is correct, and we have to wonder how patient investors will prove to be and/or how quickly they will return. Perhaps the asset shrinkage at the ir competitors will prove to be a blessing as the trades become less crowded.

But not all is bad at RenTech, at least for employees:

Renaissance, after all, is a many-splendored thing. Simmons’s $7 billion flagship fund, Medallion, rocked out a 70 percent return in 2007......From 1990 to 2006, Medallion’s annualized performance, after fees, was a gravity defying 38.5 percent. Trader Monthly

RenTech’s Medallion fund consists primarily of employees assets.

And I have to wonder how well all of this is sitting with RenTech’s clients. Watching Medallion rack up a huge year while RIEF struggles is likely to raise eyebrows. Perhaps their newest offering will fare better; RenTech recently launched an Institutional Futures fund, which might be tailor made for the current environment that has, until recently, favored this type of strategy.

Still, if the numbers don’t turn around, Simons, a former codebreaker for the government, might have to start communicating in the Navajo tongue to his clients. By the time they figure what he is saying he will be retired.

Simons, Mandel Post Their Biggest Drops in Fund Slump
Bloomberg

The New Math
Alpha Magazine

Jim Simons
Trader Daily

Full Simons profile from Trader Daily:

Although his Renaissance Institutional Equities Fund was down by as much as 8.7 percent at one point during the summer of quant discontent, Simmons and his legion of programmers battled back. When the dust settled, the fund (around $22 billion as of the end of 2007) partially regained its footing, finishing the year slightly down. Simmons, meanwhile, stood tall with yet another 10-figure takedown.

Renaissance, after all, is a many-splendored thing. Simmons’s $7 billion flagship fund, Medallion, rocked out a70 percent return in 2007. The white-bearded math deity, who splits his time between the firm’s Manhattan offices and its headquarters on Long Island’s North Shore, is said to be returning assets to investors. Medallion carries a steep 5-and-44 fee, and ironically, it’s mostly the firm’s own employees who remain in the fund — although they’re charged 5-and-36. Talk about paying for the privilege!

These teams of math-and physics masters produce thousands of eye-blinkingly fast, algo-driven, quick-turn trades to try to exploit momentary market anomalies. From 1990 to 2006, Medallion’s annualized performance, after fees, was a gravity defying 38.5 percent. Renaissance’s new Institutional Futures fund, launched in October, had garnered $3.1 billion in assets as of the end of 2007.

A former Defense Department codebreaker and Stony Brook University math professor credited with helping devise an influential geometry theorem, Simmons has used the vast fortune he has made since leaving academia in the late 1970s to support, among other things, math teachers, the study of autism and health care in Nepal. At the end of February, he gave Stony Brook $60 million.

Word is he’s a few years from retirement, which means more peak earning years are yet to come.
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