A new Legend: Jim Simons’ Renaissance Technologies

July 13, 2017

An award-winning mathematician and former cold war code-breaker, James Harris “Jim” Simons founded Renaissance Technologies in 1982. He sought to apply his skills in mathematics to the field of finance and in 1988 founded the most successful hedge fund of all time: Medallion Fund. While Medallion Fund stopped taking in new money in 1993, Simons launched another fund in 2005 which applies the same quantitative methods on longer time-horizons. Also largely run with internal capital we have been able to build a position in this Renaissance Institutional Equities Fund.

Renaissance Technologies was founded by Jim Simons in 1982. The firm specializes in systematic trading using only quantitative models derived from mathematical and statistical analysis. Renaissance is considered the pinnacle of quant investing and is unique, even among hedge funds, for the genius – and eccentricity – of its people. Since Simon became non-executive Chairman in 2010, the firm has been co-headed by Peter Brown and Robert Mercer, both Ph.Ds. Firmwide, assets under management are over $40bln. Of its 300 employees, a third are Ph.Ds. Each day, Renaissance collects more than ten terabyte of data.

In 1988, Simons and algebraist James Ax established Renaissance’s most profitable portfolio, the Medallion Fund, which used advanced mathematical models to explore correlations from which they could profit. The fund was named after the math award Simons and Ax had won. Medallion Fund is widely considered the world best performing hedge fund of all time, annualizing over 35% percent even after fees as high as 5% management fee and 44% performance fees. In 1993, Renaissance stopped accepting new money from outsiders and any outside investors left were redeemed out of Medallion in 2005. Since then the fund has been run with just internal capital and any gains above its target size of USD 10 billion is distributed to those insiders. It was then that Renaissance launched the Renaissance Institutional Equities Fund (RIEF) which is the fund that Legends Fund participates in.

RIEF trades equities on U.S. exchanges to capitalize on medium- to long-term market inefficiencies that they believe will produce alpha over the long term. The fund mainly differs from Medallion in that it trades on longer time horizons where markets offer more capacity for their strategies. While Medallion Fund clearly is a class by itself, RIEF produces highly attractive returns with limited correlation to overall markets. Since it’s inception in 2005 the fund has produced net annualized returns of over 13%, achieving three times the cumulative performance of equity markets as measured by the MSCI World Total Return Index. The fund charges relatively modest fees of 0.35% management fee and 10% performance fee and most of its 18bln in assets is made up of internal capital, ensuring a strong alignment of interest with its investors.


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