Renaissance Technologies Hedge Fund Declines 8.7% in August By Katherine Burton Aug. 10 (Bloomberg) -- James Simons's $29 billion Renaissance Institutional Equities Fund, which uses computer models to pick stocks, has fallen 8.7 percent so far in August. The hedge fund, started two years ago, has declined 7.4 percent for the year. ``We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds,'' Simons wrote in a note to investors yesterday. Simons has one of the best records in the hedge-fund industry. His Medallion fund, which manages money only for Simons and his employees, has climbed at an average annual rate of more than 30 percent since 1988. The East Setauket, New York- based firm manages a total of $36.8 billion. http://www.bloomberg.com/apps/news?pid=20601087&sid=atlWKnI7gccw&refer=home
Letters to investors from Jim Simmons : August 9, 2007 Dear Renaissance Investor, Results in July were quite disappointing. Returns ranged between negative 4.0% and 4.5%, bringing the year to date to profits averaging a bit over 1.0%. Onshore LLC Offshore LP July YTD July YTD Series A -4.50% 0.61% -4.55% 0.19% Series B - 3.96% 1.34% -4.00% 0.97% Series C -4.40% 1.31% -4.45% 0.89% Series D -4.38% 1.49% -4.43% 1.08% Returns are for continuing investors. While much of the damage was due to weak markets, our system experienced meaningful relative losses during the first two weeks of the month. Thereafter these relative losses decreased, but the markets proceeded to decline substantially. As I reported at our mid- July investor meeting, the principal culprit was our Basic System, the platform upon which almost all of our predictions are added. The predictions themselves performed adequately during the month, but not sufficiently to overcome the down-draft in the Basic. As I showed at that meeting, while the Basic System is a low volatility approach, which, over time, should match the S&P and other indices, it does not track them, and excursions of this size and larger (in either direction) may be expected to take place. Research continues at a strong pace, with three very promising new signals in final stages of release. Such continued work and our share of good luck should ultimately produce attractive rewards. Regrettably we have not had good luck during these last few days. We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds. These undoubtedly share some signals in common with our own, and the result has been losses for RIEF of the order of 7% at the time of this writing. Many investors have called to see how we are faring, and after the close today we will send an e-mail to all with an update and additional color on the situation. Sincerely, Jim Simons Dear Investor, Further to our earlier email, here is a communication from Jim Simons to all our clients regarding our recent performance. Please do not hesitate to call Mark or Sebastian with any questions and/or comments. ___________ Dear Renaissance Investor, As promised in my July letter, posted today on the RIEF website, I want to share some thoughts on August-to-date performance in order to provide perspective on a most unusual period. RIEF results through July 31 were below expectations, but not extraordinarily so. I've previously stated that the low volatility Basic System, to which our predictions are added, was not in sync with the market during much of this period. Nonetheless, we remain confident that over time the Basic System will match the return of the S&P and, enhanced by our predictive signals, should exceed it. Since we do not attempt to track this or any other index there will be periods of positive and negative relative returns. August (down 8.7% through today) is a different story. The culprit is not the Basic System but our predictive overlay. While we believe we have an excellent set of predictive signals, some of these are undoubtedly shared by a number of long/short hedge funds. For one reason or another many of these funds have not been doing well, and certain factors have caused them to liquidate positions. In addition to poor performance these factors may include losses in credit securities, excessive risk, margin calls and others. All of this may not influence the direction of the overall market, but it may certainly alter the relationships of stocks to each other in a dramatic way. Given the undoubted partial overlap of our portfolios, these liquidations have had a negative impact on RIEF. Other examples of such liquidations are the meltdown of risk arbitrage positions in the October 1987 crash, the forced liquidation of junk bonds around 1990 and the collapse of European bonds in 1994. Some of these were in the midst of a bear market, some not. Such events tend to occur extremely infrequently. We cannot predict the duration of the current environment, but usually such behavior causes first pain and then opportunity. While we may hedge out some market risk, our basic plan is to stay the course and, as conditions revert to the norm, we anticipate the possibility of an attractive opportunity for RIEF. Our firm remains strong, and although Medallion has experienced some losses in August, it is solidly profitable year-to-date. We are confident in our approach, and we urge you to contact our staff should you have any questions. Sincerely, Jim Simons
My model also has had a rough last couple of weeks: even to down a little. It is stuck in the mud. I am pretty sure what could be improved in "Basic", same thing that I have done to improve my model. These things all go "wrong" in similar way. nitro
Of course, RenTech has been the "watch" for everyone in the industry. Along with some of the top hedge funds in the world, they're always under the scrutiny of "everyone" watching over them. I do not work "in" or "for" RenTech. and don't plan on posting material out of compliance, but... They've (some of the staff I know) have been expecting a negative performance to happen within their expectation (It's simply that "shit happens". None of the quants and risk group expects all "math" to happen under their "expectation". They're a lot more realistic than what most people expect from a Quant) All I add to the issue is... they have things within managable capabilities. (Along with a few "Quant-driven HFs") If you're expecting Amaranth or LTCM with RenTech... it ain't gonna happen.
Wow, I am shocked. What are these guys are thinking? Do they only make exceptional returns when markets go up? I was thinking ranaisance is making a killing in these markets.
If they understand the weakness, I guarantee you that the model, or the way they put systems together at play, will come out of it that much better at the end of it. The problem is not that the model is showing market contingencies where it may not do well. All trading assumes some sort of liquidity to succeed, and if you read the letter you can see that liquidity is part of the problem. The only way the model will continue to do badly is if a large portion of hedge funds pulled out of this strategy altogether. Further, these people have many different share classes. Just because one of the models is doing badly, doesn't mean the firm as a whole is doing badly. However, from the letter it appears that most of their models are fed from one fundamental model which happens to be the one that has problems, and this could be a cause for concern. nitro