Renaissance makes first loss in 20 years US firm Renaissance Technologies, regarded as the world's most successful hedge fund manager, recorded its first annual loss on a hedge fund since 1988 as its Renaissance Institutional Equities Fund fell almost 1% last year. The fund, which the firm launched in 2005 saying it had a capacity of $100bn (â¬68bn), five times larger than any other hedge fund, lost 0.95% in the 12 months to the end of December, according to a person who has seen the fund's results. It was brought down by an eight-month run of losses totalling 6.27% to the end of last month. Its annual return since launch is 9.7% with a volatility of 6.7%. Renaissance Technologies is the manager of the Medallion fund, a $5bn computer-driven hedge fund that made an average of 34% a year since its launch 20 years ago, with no loss-making years apart from its first. Fund of hedge fund managers and investment consultants have described this as the best set of returns of any hedge fund. The firm bought out the last investor in the Medallion fund in 2005 and the investor community has not seen its returns since then. The firm, founded by former professor of mathematics Jim Simons, has raised $26bn for the Renaissance Institutional Equities Fund, which is also a computer-driven fund but which has a target of outperforming the US equity market, rather than an absolute return target. But investors have asked to redeem $4bn of their capital, according to Reuters, citing a person familiar with the fund. Investors lost confidence in computer-driven funds in August, when those following a statistical arbitrage strategy investing in US equities suffered sharp losses, of up to 31%, in less than 10 days. The Renaissance Institutional Equities Fund also lost money in early August, although it made most of it back later in the month. Renaissance was not available for comment. http://www.efinancialnews.com/archive/keyword/Renaissance/1/content/2449545356/
I have had some discussion with ppl who are in the same business as RenTech about this. I think RenTech got too greedy (see firms like DEShaw and AQR, throw SAC in there too). It is greed, plain and simple, to try to raise a 100B fund. Medallion, however, has continued to do well (it is small, as the article pointed out, only 5B), of cos, most of it is Simon's, and other partners' own money now. This just more evidence that more AUM is not necessarily better. Citadel, with only abt 30B, is doing well, because they have essentially many diversified businesses (and Griffin is notorious for growing new business, and cutting less profitable businesses loose), instead of really only 1-2 in most funds.
Renaissance Institutional Equities Fund was never created to be an absolute return fund as far as I know. It was supposed to be an equity fund with returns similar to the SP500 with lower volatility over a complete market cycle. Journalists make a big deal out of the fact that a high frequency trading fund like Medallion never lost money on a yearly basis and now REIF had a negative year. In actual reality, it means nothing (other than Simons losing a bit of the touch of midas he had in the eyes of naive journalists).
Yes, I think RIEF was designed to capture market share from index allocation not the absolute return allocation. My read of it was beta exposure at superior sharpe ratios. It's a clever pitch when you think about it, especially when all it means is throwing in some expired strategies with no long term positive expected return, but with huge capacity and an imperfect correlation with the broad market. Unfortunately, in the short term you might under or outperform at random, so without knowing more I don't think this one losing year necessarily proves anything.
i think the main point here is this: no matter who you are or what you are the market is the market and will always find you out. simons seems to think that these markets are giving money away by him cracking a secret formula. this proves otherwise. the market will never be sussed by people like simons. they continually evolve and there is never any one winning system. at some point i think most of his funds and systems will lose. what he actually thought he was going to make money on every fund forever and all us mugs were going to turn up every day and line his pockets. think again jim simons we are not that stupid.
I would say James is laughing at you all the way to the bank Beaker, but he gives a lot of it away. REIF investors were advised to expect drawdowns comparable to the S&P500, but the timing of such would be unknown. It's a beta diversification strategy. As others have mentioned, Medallion was/is a completely different beast than REIF.