$100B hedge fund

Discussion in 'Wall St. News' started by richardyu301, Jul 1, 2005.

  1. Renaissance's Man:
    James Simons Does
    The Math on Fund

    Staff Reporter of THE WALL STREET JOURNAL
    July 1, 2005; Page C1

    It is getting harder for hedge-fund managers to generate above-average returns when their funds grow too big, right?

    Tell that to James Simons.

    Mr. Simons, a world-class mathematician who runs Renaissance Technologies Corp., is creating a buzz in the hedge-fund world because he is about to launch a fund that he claims could handle $100 billion -- about 10% of all assets managed by hedge funds today. It will have a minimum investment of $20 million, and is aimed at institutional investors, according to early marketing materials.

    Mr. Simons, whose net worth has been estimated at $2.5 billion, has seen Renaissance's $5 billion flagship Medallion hedge fund earn an average of 34% annually since it began in 1988, making it the most successful fund during the period. These returns, which are audited, come even after fees that now are -- get this -- 5% of assets and 44% of all investment gains. That is more than double what other hedge funds typically charge.

    So far this year, Medallion is up about 12%, amid losses for the overall market. Mr. Simons has done it with computer-driven, short-term trading in various markets. The firm won't divulge details of its strategy, even to its own investors. Other funds use the same strategy but are far less successful.

    The new fund will take a different approach: focusing on the U.S. stock market and holding investments for more than a year.

    Medallion hasn't been open to new investors for 12 years, and Mr. Simons, 67 years old, has been returning money to existing investors, convinced that returns would suffer if the fund got too big. In fact, the firm is expected to return outside investors' remaining money at year's end, leaving Mr. Simons and his employees as Medallion's sole investors and the fund about as large as it is now. Dealing with few investors has helped the publicity-shy Mr. Simons stay below the radar screen.

    Mr. Simons declined requests for comment. A Renaissance spokesman wouldn't comment on the new fund, which will be called the Renaissance Institutional Equities Fund.

    The latest effort -- even if it never reaches the $100 billion mark -- would seem to run up against Renaissance's instincts to keep a lid on assets. Indeed, many managers have found that more money under management can put a crimp on results. Investors briefed on the new fund say it will differ from the existing Medallion hedge fund by aiming for tamer returns that would enable it to handle the greater sums.

    The new fund marks the latest encroachment of hedge funds into the lucrative market of investing money for pension plans and other institutional investors, turf that traditional money-management firms like mutual funds have clung to. The fund will use complex quantitative models, developed by the 60 or so mathematics and physics Ph.D.s on staff. The fund will aim to beat the returns of the Standard & Poor's 500-stock index but with lower volatility.

    Though Mr. Simons isn't well known, even on Wall Street, his track record likely will spur strong interest in the fund, investors say. Renaissance's 34% annual average returns since 1988 top every other hedge fund in that time period, according to Antoine Bernheim, who publishes the U.S. Offshore Funds Directory, which tracks over 1,000 hedge funds. By comparison, George Soros's Quantum Fund has climbed about 22% annually since 1988, while the Standard & Poor's 500 rose 9.6% annually.

    Medallion, which hasn't had a down month in the past two years, according to one investor, has distributed so much money to its investors over the years that they haven't been able to reinvest these gains to take advantage of the big returns -- likely whetting investor appetite for the new fund.

    Though prior performance doesn't guarantee the new fund's success, it will share Medallion's scientific approach, and is based on Medallion's "technology," according to the marketing materials.

    "Renaissance's returns are 10 percentage points higher than legendary investors such as [Bruce] Kovner, Soros, Paul Tudor Jones, [Louis] Bacon and [Mark] Kingdon," Mr. Bernheim says. "He's in a different class from everyone else."

    But while Mr. Simons will levy lower fees, such as about 2% of assets, to attract interest in his new fund, he also may have to disclose more details about trades than he is accustomed to. That is because pension plans, and their consultants, usually require a full briefing about strategies of firms they invest with.

    "It's pretty much a black box. People that work there are sworn to secrecy; it's a proprietary trading strategy," says Jeffrey Tarrant, president and chief investment officer of Protege Partners LLC, based in New York, an investor in Renaissance.

    Mr. Simons began his career as a professor of mathematics, teaching at the Massachusetts Institute of Technology and Harvard University. He helped develop a geometry theorem, called Chern-Simons, that is a critical tool for theoretical physics.

    "It's startling to see such a highly successful mathematician achieve success in another field," says Edward Witten, professor of physics at the Institute for Advanced Study in Princeton, N.J., and considered by many of his peers to be the most accomplished theoretical physicist alive.

    After breaking military codes for the government during the Vietnam War, Mr. Simons turned to money management. He hires specialists in applied math, quantum physics and linguistics for Renaissance's office in East Setauket on New York's Long Island. Hardly any have a Wall Street background. The firm relies on a system to make thousands of rapid-fire, short-term trades daily to take advantage of small, fleeting anomalies in various markets.
  2. BTW, does anyone know who else is applying high-freq finance/time-series analysis in his fund?

    I remember a few mathematicians even get Nobel Prize of Economics for their research in this area. Is there a good book out there on this topic?
  3. "The fund will use complex quantitative models, developed by the 60 or so mathematics and physics Ph.D.s on staff."

    Oh yeah? Ha!

    With all those guys, I'd like to see him try to do this! (scroll down to the platform snapshot towards the bottom.)

    $1758.84 in 26 days. That is an average of $67.647 a day. Projected, that is $24,691.40 in a year.

    24.69% with less than .5% (current) drawdown!

    Beating Standard & Poor's 500 average of 9.6% by over 15%!

    I highly doubt he and his team of scientists could do that well trading strictly currencies!

    And it's only me trading!


  4. sKaLpZ,

    I hv followed your thread.

    But the pt here is whether James Simons can apply time-series analysis to such a huge amt and still make it.

    I hv heard that even the FED is applying this method and if their target object is the entire US economy maybe it is a matter that works for all time-frames and all market size.

    I am just an average trader and I hv no idea understanding the details. But I think that some common techniques we are using are actually applying fractal/time-series/high-freq finance/chaos (I hv no idea where their differences are anyway):
    - study the trend in all time frames
    - volatility breakdown is a good indicator
    - risk management should NOT be purely based on % of capital at risk but the support/resistance levels... which may be determined by the different EMAs of different time frames (or other methods) which is actually related to time-series analysis in nature.


  5. :D :cool:
  6. Whatever.

    My point is, I am trading ONLY currencies. And it's only me.

    I just think that dude with his army of physics Ph.Ds money scientists would get smoked in the forex if that's all they traded.

    Whatever system anybody trades, results are the bottom line - the forex is the most complex and difficult market in the world to make profits in.
  7. nitro


    Thanks for the articles and the .pdf

  8. cakulev


    Perhaps my English is weak as I still don’t understand.
    Is 34% net or gross return? If is net, then his gross is 5+ 34/0.56 =60%. If is gross investors are pocketing 34*.56 – 5 = 14%.
  9. Funny thing about the markets ..... I keep meeting mathematicians that opted to chuck academia and enter the trading fray and most of them far exceeded their university compensation.

  10. Skaplz, your retarded. It says in the article that his fund has averaged 34% a year with no down months in the past two, killing your returns. That is for a much longer time period than 26 days.

    And by the way $67/day = about 8 bucks an hour, I hear Mcdonalds pays $9.50 maybe you should do that instead.


    #10     Jul 1, 2005